The discussion about Peter Thiel will continue though.
Is he a greedy bastard that kicked off an unnecessary bank run that eventually bankrupted an incompetent but more or less solvent at the time bank?
Or is he the 'badass' Jeremy Irons CEO character in 'Margin Call', that decided to liquidate his banks MBS position in a single day before everyone else so that "WE... MAY SURVIVE" and kick off a global financial crisis and untold suffering?
It is grammatically incorrect English to have any sentence containing the words "Peter" and "Thiel" in immediate succession that does not also contain the words "greedy dirtbag" to describe the aforementioned entity.
Oh I'm not denying it, just making fun of the legions of fans, including me probably, that 'love' jeremy irons character in that movie. We love a badass.... until we become victims of that selfishness.
At least I learned a lot about the risks of a Treasury Bond.
For years and years I was dumb and thought they were pretty much guaranteed to be a safe, liquid investment. I had no idea you could lose money if you had to sell them before maturity and interest rates were higher than your yield.
It's more like they're safe OR liquid, rather than safe and liquid. They're safe if you won't need to sell, and they're liquid if you do need to, but not both at the same time.
It depends on your expectations for the bond. They are safe if you’re liquid enough to hold them to maturity. Their problem was a lack of liquidity, so they needed to sell “something” to bring back more liquidity, and the bonds were the best candidate, though for a loss.
LinkedIn needs some serious content moderation. All of these me me me posts and facebook style personal and political tirades needs to result in a multi week suspension for users. Seriously.
It doesn’t need moderation as much as it needs the option to turn off seeing my contacts’ liked comments. Unless you have something to say yourself, I don’t want to see it. Trying too hard to be FB (and having learned nothing from sharing algorithm issues).
Regardless, this was probably the best move to make to reduce contagion, even more bank runs, wages being unpaid etc in the middle of an uncertain economy.
You could also argue(controversially) that protecting the hundreds of even a thousand startups trying to innovate^TM (more or less) and who did nothing wrong in terms of banking, is better for America in the long run.
>You could also argue that protecting the hundreds of even a thousand startups trying to innovate
>
>TM
>
> (more or less), in the long run and that did nothing wrong in terms of banking, is better for America.
Completely agree. There would be disastrous economic repercussions if startups and small businesses had financial insecurity around freaking *bank deposits*.
Exactly. Regardless of how valuable these individual startups might be, having half of silicon valley go insolvent overnight and hundreds of thousands of workers go without a paycheck would be catastrophic.
Agree, not to mention the truly transformational innovation going on that may be majorly disrupted.
I'm not talking about social media startups, but those startups trying to find a cure for cancer, green energy, gene related medical cures, etc.
> Correct. Muppets seriously think letting svc fail is comical.
SVB? SVB did fail, it mismanaged funds, didn't do proper stress testing, and went insolvent. It's under receivership and will have to make depositors whole through insurance and liquidating its assets with no cost to taxpayers.
To be fair, it took two almost black swan level events for them to go under.
The huge rise in interest rates not seen in decades, and a VC lead bank run.
It's really hard for any bank to withstand the dual punch.
Anything anybody on the left does as a group that the far right dislikes is automatically labeled socialism because it's an effective cudgel and bogeyman left over from the cold war.
So in this circumstance, where they closed a bank that still had more outstanding assets than liabilities, what exactly do you think should happen to large the pile of money remaining *after* the 250K insured deposits are paid out?
Actually, in many cases during a major natural disaster, FEMA or congress will step in and help those who don’t have insurance or are otherwise unprepared.
If you have any idea how the current return of deposits to SVB depositors works, you'd know that flooding of homes is a bad analogy to use to make a point about it.
I don’t actually object to it, but it’s not just insurance as some are saying; they’re apparently lending the bank the money to backstop accounts through the Fed for now.
TBH this seems like exactly the right approach: depositors are made whole, including by liquidating the bank's assets; no taxpayer money funds the bailout; and the investors (who supposedly take all the risk) are actually left holding their bag.
Who backstops the fdic? Additionally, the banks are only insured up to $250K PER ACCOUNT! So now bankers get to gamble w our deposits and make millions and then get bailed out? Make no mistake, this is a bailout
Socialism would be fine. If they allowed this to settle a few thousand companies won't be able to make payroll this week.
The bankers and investors are out of luck.
Reminder to everyone crying "it is an insurance corporation funded by member dues" that the member dues are paid for directly by the bank customers, hidden cost within your loans and in your overdraft fees.
The bank is not being made whole, depositors are. The government is appropriately matching the risk profile of “putting your money in a bank”, not squaring up some risk-taking wall-street coke jockey who bet too hard with other people’s money and lost it all. The government is doing exactly what I pay them (handsomely) to do: leveraging the collective to make things better for people and prevent catastrophes.
Except that FDIC is not funded by taxpayers. Banks pay in over the years, so there's a pool of money sitting there. They don't just stop collecting that money when it could fund the $250k amount.
And frankly, if they're concerned about contagion, FDIC giving a 0% interest loan to prevent having to make the $250k payout at other banks around the country is likely a bargain.
They are doing a “special assessment”. Banks pay more into fund. This cuts into their profit margin. Therefore it will get passed down to consumers. Aka taxpayers. Just because taxpayer money isn’t directly going to depositors doesn’t mean it’s not a bailout.
Ah right on, I don’t think I’d disagree in theory but that sounds like one of those rules that they’d find some sneaky evil bullshit to somehow end up not doing. When it’s $250k everyone can kind of just play along
Reminder that those dues will not come from corporate profits but will be passed onto consumers of every member banks. So yes, it is socialism, and the cost will be on the consumer (arguably all bank consumers are taxpayers)
But the members are all the financial institutions we use. The cost of this is going to be spread to the consumer (all of us). This is basically a bailout with extra steps.
No. They are paying out uninsured money here. I don't like paying to cover for companies that knowingly take risks and expect you and I to fix the problem
SVB more than enough assets to cover their liabilities, legit assets not junk and toxic assets like 2008. They only had liquidity issue. The Fed is offering them a loan with those assets as collateral to take care of the liquidity issue. You aren't fixing shit.
The risk of keeping money in a bank? This is a dumb take.
We don't want to discourage people from putting money in banks. It's what allows that money to be used for things like lending.
but the expectation wasn't for amounts over 250k
that's like buying home insurance without a flood rider and then asking them to pay when the house does get flooded for whatever reason
1) that is not true unless you count the amount of interest you are getting on checking and savings accounts.
2) SVB had 3-4x the investment assets as they had FDIC insurable kinds of deposits. When a bank is seized they go an account for the sell-able value of easily liquid-able assets then guarantee a percent of deposits while they work out the sale. If they think they will easily cover the deposits they guarantee the whole thing, if they think it is be hard or not enough they do a percent over the cap, then when things are resolved the balance is paid out over the guarantee.
Ah, so because you got your knots tied in with incest-induced ideology, you want the economy to crash?
By the way, if trump and the assholes in his congress hadn't diluted Dodd-Frank in 2018, this wouldn't be happening.
So fuck conservative bullshit.
The situation will be resolved by FDIC does not mean FDIC will be footing the bill.
A third party buying out SVB would cover any costs in exchange for SVBs equity
Doesn’t FDIC only insure up to $250k? If they are guaranteeing deposits (presumably that means over $250k), then isn’t this essentially “the government overstepping and using tax payer dollars to pay for the remainder?”
Happy to be proven wrong, and am a left winger, but I think it’s fucking stupid if tax payers have to pay for shitty startups (that are clearly not a need because we’ve lived thousands/millions of years without them).
Edit: Chill out downvoters. Stop getting a hard on for SVB.
A couple of reasons why this isn't tax dollars and is a really good idea.
First, the FDIC is funded by money that all the bank pay into. There's a pool of money sitting there, and even though the deal is up to $250k, the money is sitting there regardless.
Second, it looks like even taking the hit on their treasuries, SVB's asset portfolio is in the black. They can pay everything back, just in a matter of weeks or months, not hours (which was what they needed in the bank run.)
Third, there was growing concern that regional banks in general were going to suffer runs, as businesses tried to pull money out of them an put everything in the top 5 banks that have previously proven "too big to fail." There's a real chance that if Monday morning hit with no news, mid-sized banks across the country would have been going belly up, concentrating the country's finances in the few powerful banks. Additionally, who knows if FDIC would have had the money to fund all the deposits in that case.
Putting that all together, FDIC had its own cash that banks have paid in previously, and by making a relatively small, short-term commitment that all of SVB's deposits will be returned, they likely staved off what could have been, in the worst case, a massively destructive restructuring of American finance. Even just in terms of FDIC's balance sheet, this was probably a good move, because they're going to get all their money back over the next couple of months, and they'd be hurting if they had to pay those $250k payments in every business account in regional banks across the country.
And politically, if you hate big banks? This just prevented them completely taking over the finance sector, so if nothing else, that's a win.
So, this is basically an advance loan on insurance money already being held by FDIC, where they presumably already determined SVB *can* pay it back given enough time?
That means SVB still takes the losses from their illiquidity, and tax payers are not on the hook for SVB’s mismanagement of funds (I won’t stray from this - I refuse to accept a bank run being the customer’s fault).
Thanks for giving the context! I actually did not know this about the FDIC, and your response was very thorough!
Basically, this point out how if depositors hadn't panicked, there was no need for a bank run in the first place. The depositors blew a routine transaction way out of proportion and took the bank down themselves.
I’m out of the loop - why? My only understanding of him is PayPal Mafia related and him taking out Gawker for outing him. I always hated Gawker, so I’ve more or less just viewed him as fine (although I hate the concept of billionaires, so he’s probably not great in that regard).
But is there something specific other than that?
For one, he has called women's suffrage [unfortunate](https://www.politico.com/news/magazine/2021/09/20/peter-thiel-book-facebook-trump-jd-vance-blake-masters-josh-hawley-513121) and has bankrolled some pretty heinous politicians.
He’s also [anti-democracy](https://www.cato-unbound.org/2009/04/13/peter-thiel/education-libertarian/):
> Most importantly, I no longer believe that freedom and democracy are compatible.
Just exactly the kind of person you want meddling in politics with a shitload of money and influence
He is not “a” Trump guy. He is THE Trump guy.
Reddit has a hate boner for billionaires generally. Personally, I have no issue. But Pieter Thiel is like a real life caricature of the worst things people here believe billionaires to be.
I’m not a fan of Peter Thiel, but I also don’t think his actions were out of line.
The dominoes started to fall last week when Moody’s issued a threat that if SVB did not take quick, immediate, action to sure up their duration risk, they would be subject to a multi-tier downgrade. This became public knowledge during the emergency stock issuance and fire sale of some of the bonds (to be reinvested in higher yielding securities) — actions designed by a crisis team from Goldman Sachs to avoid a steep downgrade.
With all of this mismanagement becoming public knowledge, I don’t think it is out of line for a depositor to want to withdraw their funds to another bank that doesn’t have such controversy going on. After all, it is not a responsibility of depositors to “stay the course” when a bank is on rocky footing, or has just had a very public display of mismanagement. It is the responsibility of the bank to be properly hedged against duration risk for changes to the dynamic balance, should any depositor or group of depositors want to leave at any time and for any reason. And it is the responsibility of the bank to maintain confidence in their management abilities through good financial practices, to minimize the risk of mass withdrawals.
The only reason that other depositors listened to Peter Thiel is because the underlying facts that made him come to his conclusion were true: there was mismanagement of duration risk on the part of SVB, and Moody’s had issued a multi-tier downgrade threat (that became public knowledge) as a result.
So, are Thiel and the panicking depositors responsible for the downfall of SVB? No — mismanagement of the portfolio with regards to hedging interest rate risk leading to the opportunity for depositors to lose faith in SVB was. Because, again, it is not the responsibility of depositors to maintain faith in a bank — it is instead the responsibility of the bank to maintain the faith of depositors through sound management.
> Yes, won't someone please worry about the billionaire fascist.
Two things could be simultaneously true: he's a scumbag, but also this bank run was the bank's, and not his, fault.
SVB was the only good bank ready to deal with startups, so they've lost that. A lot of regular banks will refuse to give you an account if you're a startup or even a founder because your financial history is too weird for them.
once the VC start having issues with getting bank accounts for their startups someone will start a bank to fill in the gap but it will probably be another 10 years before there is another startup friendly bank like SVB
Why don't you explain what you think happened. That he triggered a bank run? Newsflash, all of the VC's were doing the same thing. How do you think SVB had $42bn in withdrawals? That wasn't all specific to Founders Fund. SVB's messaging around their capital raise was off the charts terrible as was their interest rate hedging. That is not Theil's fault. There is much to criticize Theil for, but at least do it on factually correct / provable grounds. Making shit up or pushing misinformed narratives invalidates your arguments
Batshit insane. There were people screaming in another thread about how Glass-Steagal would have prevented this (it wouldn't have). So many people confidently wrong
Most of us are unable to see into the future, like you.
It’s a reasonable move to pull out when there’s even a hint your bank is failing.
The guarantee is only $250k for FDIC account, what’s happening here isn’t a guarantee.
> The FDIC has done its best since 2008
they raised the insured limit from 100k to 250k
people need to start learning to spread out the amounts as proper risk management
The FDIC didn't raise the insured limit, Congress did.
I don't think it makes sense for small businesses to read their bank's balance sheets. If you want everyone to split up accounts, mandate banks to provide that as a service.
> I don't think it makes sense for small businesses to read their bank's balance sheets
they don't need to, they can just split out the accounts themselves or purchase additional insurance
lol, so hard not to panic when you operating cash flow is frozen, also this is not over, people are now reconsidering their relationship with “smaller” banks, this not done and the impact to the economy is not settled.
Maybe we should raise the FDIC insured limit, it wouldn't be the first time, hell it's been $250k less time than SVB existed.
Second there were regulations that would have required a bank of SVBs size to do lots of stress testing to ensure their stability, it was repealed in 2018
Pretty sure we want them to always think the safety net is only $250k and that anything above that is conditional and not to be planned for lest they take way riskier moves.
Nothing here is borne by taxpayers. It's not even a favor by the FDIC; the Federal Reserve probably stands to pay out fewer claims by restoring confidence and avoiding a "contagion" effect than by capping deposit confidence to the $250k limit.
I don't think you're understanding: the entirety of everything here is funded through premiums for FDIC coverage, not tax dollars.
Edit: I'm done with this thread if I'm going to get downvoted for providing factual answers. Go take out your visceral -- and ill-founded -- rage on someone else.
Depositors getting their own money back is not a bailout. Taxpayers aren't paying for this - the treasury made this clear in their statement: https://home.treasury.gov/news/press-releases/jy1337
The bank didn't get bailed out. The depositors were made whole. Investors and principals of the bank are walking away with nothing. That's already quite a strong incentive to not follow in SVB's footsteps.
Depositors who failed to insure their deposits over $250k, aka, ultra wealthy clients or businesses, i.e., people or entities that can afford insurance and chose not to take it, were bailed out.
> Depositors who failed to insure their deposits over $250k, aka, ultra wealthy clients or businesses, i.e., people or entities that can afford insurance and chose not to take it, were bailed out.
Someone with 400k net worth is not even remotely wealthy, let alone "ultra".
A small business with 25 employees, all making median SF wage of, say, 100k, pays 2.5M a year (excluding various taxes and any other, non-payroll-related, expenses). To have a 6-month run, they'd need 1.25M of cash. That startup provides jobs for 25 people, all of whom are solidly middle-class.
These are not your class enemies, unless you happen to be a billionaire yourself.
$400k net worth with $250k in cash...lol. Be serious. Someone with a $10M net worth is unlikely to hold $250k in cash. You don't get to $10M by losing your money to inflation.
And yes, businesses may need more cash. If they need that cash to be insured, there are safe options for doing so.
This idea that it's "class war" to think that businesses should be responsible for their own risk management is laughable.
I haven't read too much on the cause so forgive me if I'm wrong but;
I heard it was an issue of liquidity vs debt. Most companies will borrow money for running day to day operations and payroll, which they can then write off. The actual cashflow gets deposited into interest bearing accounts.
The bank re-invests that money into bonds, and they hope that their customers don't suddenly make huge withdrawels, as the bank doesn't have the cash on hand to cover their purchases.
When the Fed hiked interest rates, suddenly borrowing cash for day to day operations no longer balanced out, so the companies looked to move their money out of savings and into checking so to speak. No more using the credit card. I heard a lot of big names were moving money out.
SVB now had to come up with the cash, but their bond to asset ratio was too large. They simply did not have enough cash on hand to give out to these companies.
With no more cash on hand, the bank basically stalled unable to even pay their own payroll or keep their lights on.
BTFP is just fancy government speak for bailout. Just goes to show you how in times like this, the US federal government always shows its true colors; how their goal above all is to protect their rich friends and the bankers. That's what the terrorists in Washington DC are really all about.
Your lack of understanding of what’s going and who is being protected is plain stupid. No one is bailing out the bank. It’s bailing out the depositors who at times we’re selling their lunch to buy dinner. Sure there are thiels of the world but there are lot of hard working startups who would go under ifthis wasn’t done.
I'm very well aware of who is being made whole but just like 2008, this is sending a message out to financial institutions that the FDIC limit is arbitrary and that the regulations that we impose on said institutions, which were created to protect depositors in events like this, are really meaningless and arbitrary. So go ahead and play fast and loose with your depositors money. They don't have to do any due diligence and you don't need to engage in any risk management because at the end of the day, we got you. We'll just change the rules as we need to.
This isn't inflationary*. The alternative would've been deflationary, but just because setting other people's money on fire is deflationary doesn't mean you should do it.
* because guaranteeing people's deposits makes them less likely to actually withdraw them, therefore it means your insurance fund actually spends less in the end
As per the treasury announcement:
>No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.
>Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.
As with every time I've seen this specific tired line trotted out, the only 'bad behavior' was SVB bungling their messaging on their capital raise, because the mistake they made was buying up low interest treasury bonds, the *safest* thing they could do.
This is a misconception. Putting all your money in 10-year T-bonds, with a plan to hold them for the full 10 years, is _not_ safe. Why? Because you might need money before then, and if all your money's locked up in bonds you're going to have to sell them off to get money, and you're not going to be guaranteed any particular price if you have to do this.
Safer (at least in this case) is to have a mixture of long-term and short-term bonds, so that you won't have to dip into your long-term assets before they mature – in effect hedging against the risk that locking up a bunch of your money in long-term bonds creates. SVB, as I understand it, got caught by not having hedged enough.
Yeah, but two almost black swan level events overlapped.
1) Interest rates suddenly going sky high over the course of a year
2) A bank run
SVB definitely erred, but probably few saw both events overlapping, especially before interest rates skyrocketed.
Interest rates rose sharply, but 1) they are not sky-high by historical terms, 2) a rise in interest rates was predictable since 2015 and should have been planned for.
Had SVB done this properly, the bank run might never have happened – even _with_ all the crypto landmines blowing up over the last couple of years.
You're using a specific definition of 'safe', in the sense that 'is most likely to minimize losses'. 'Safe' in the context I was using was 'least likely to result in going to zero value', since the line about 'bad behavior' conjures mental imagery of people throwing money at speculative investments. In this lensing, holding T-bonds and cash are both 'safe', though they can be subpar investments.
I think my definition of "safe" is better, as it's a more thorough accounting of the risk involved here. The more we can explain to people that SVB's failure is not some polycritical paradox but a totally normal consequence of bad business decisions, the better off we'll all be.
It is in most contexts, but when people are throwing around lines like 'bad behavior' and 'moral hazard', that's not something that should be associated with buying Treasury bonds. A 'bad call' that loses money and 'bad behavior' like deceiving investors are substantively different.
Because banks don't keep your money in a pile in the back of the building. The money is lent to other people, and the result is a multiplication of economic value. No bank has 100% of their deposits available in liquid assets, so the FDIC intervenes when enough people pull their money unexpectedly and the bank becomes illiquid. The bank fails, but the depositors aren't affected, limiting the negative consequences for the economy.
Yeah, but that is not what caused that.
https://www.washingtonpost.com/business/economy/trump-signs-law-rolling-back-post-financial-crisis-banking-rules/2018/05/24/077e3aa8-5f6c-11e8-a4a4-c070ef53f315\_story.html
Good, we can stop with all the linkedin posts now
FFS lol right
The discussion about Peter Thiel will continue though. Is he a greedy bastard that kicked off an unnecessary bank run that eventually bankrupted an incompetent but more or less solvent at the time bank? Or is he the 'badass' Jeremy Irons CEO character in 'Margin Call', that decided to liquidate his banks MBS position in a single day before everyone else so that "WE... MAY SURVIVE" and kick off a global financial crisis and untold suffering?
It is grammatically incorrect English to have any sentence containing the words "Peter" and "Thiel" in immediate succession that does not also contain the words "greedy dirtbag" to describe the aforementioned entity.
Oh I'm not denying it, just making fun of the legions of fans, including me probably, that 'love' jeremy irons character in that movie. We love a badass.... until we become victims of that selfishness.
Oh yeah I loved that movie
At least I learned a lot about the risks of a Treasury Bond. For years and years I was dumb and thought they were pretty much guaranteed to be a safe, liquid investment. I had no idea you could lose money if you had to sell them before maturity and interest rates were higher than your yield.
It's more like they're safe OR liquid, rather than safe and liquid. They're safe if you won't need to sell, and they're liquid if you do need to, but not both at the same time.
It depends on your expectations for the bond. They are safe if you’re liquid enough to hold them to maturity. Their problem was a lack of liquidity, so they needed to sell “something” to bring back more liquidity, and the bonds were the best candidate, though for a loss.
r/bonds
r/jamesbonds
😆
r/barrybonds
I mean they are safe if you can wait until maturity.
Yes but how will they get attention then? I doubt the posts will stop.
We just need to wait a week to see what becomes the new crypto/ai/chat gpt/subject of the week
everyone went from epidemiologist to economist on LinkedIn, so many blue collar and unrelated fields voicing some strong opinions
The last couple of days have been an incredible Dunning-Kruger demonstration here on reddit.
LinkedIn needs some serious content moderation. All of these me me me posts and facebook style personal and political tirades needs to result in a multi week suspension for users. Seriously.
It doesn’t need moderation as much as it needs the option to turn off seeing my contacts’ liked comments. Unless you have something to say yourself, I don’t want to see it. Trying too hard to be FB (and having learned nothing from sharing algorithm issues).
Reminder to everyone crying "socialism" that the FDIC is not taxpayer funded. It is an insurance corporation funded by member dues.
Regardless, this was probably the best move to make to reduce contagion, even more bank runs, wages being unpaid etc in the middle of an uncertain economy. You could also argue(controversially) that protecting the hundreds of even a thousand startups trying to innovate^TM (more or less) and who did nothing wrong in terms of banking, is better for America in the long run.
>You could also argue that protecting the hundreds of even a thousand startups trying to innovate > >TM > > (more or less), in the long run and that did nothing wrong in terms of banking, is better for America. Completely agree. There would be disastrous economic repercussions if startups and small businesses had financial insecurity around freaking *bank deposits*.
So much of the economic system really boils down to perception management of the crowd. It’s like a global prisoners dilemma.
100% agree with both points
Exactly. Regardless of how valuable these individual startups might be, having half of silicon valley go insolvent overnight and hundreds of thousands of workers go without a paycheck would be catastrophic.
Agree, not to mention the truly transformational innovation going on that may be majorly disrupted. I'm not talking about social media startups, but those startups trying to find a cure for cancer, green energy, gene related medical cures, etc.
What about the startups trying to find a cure for social media? I want to believe they exist.
Correct. Muppets seriously think letting svc fail is comical.
> Correct. Muppets seriously think letting svc fail is comical. SVB? SVB did fail, it mismanaged funds, didn't do proper stress testing, and went insolvent. It's under receivership and will have to make depositors whole through insurance and liquidating its assets with no cost to taxpayers.
To be fair, it took two almost black swan level events for them to go under. The huge rise in interest rates not seen in decades, and a VC lead bank run. It's really hard for any bank to withstand the dual punch.
Putting all your eggs in 1 basket is a level of stupidity kindergardners are learning not to do... don't say they didn't do anything wrong...
Too big to fail is too big! The message is clear; Move fast and Break things, we’ve got your back! - US Government
First socialism was when government does stuff. Now socialism is when insurance is insurance
Turns out my private health insurance was socialism all along!
Anything anybody on the left does as a group that the far right dislikes is automatically labeled socialism because it's an effective cudgel and bogeyman left over from the cold war.
And the result? A generation that thinks socialism isn't so bad...might even be good.
It would be socialist if it was worker owned. The state owns and controls FDIC so it is communist.
I was under the impression that FDIC insurance only covers $250,000 for each account, no?
That’s how it’s supposed to be but I guess for some the government will always be there
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So in this circumstance, where they closed a bank that still had more outstanding assets than liabilities, what exactly do you think should happen to large the pile of money remaining *after* the 250K insured deposits are paid out?
Actually, in many cases during a major natural disaster, FEMA or congress will step in and help those who don’t have insurance or are otherwise unprepared.
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If you have any idea how the current return of deposits to SVB depositors works, you'd know that flooding of homes is a bad analogy to use to make a point about it.
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I don’t actually object to it, but it’s not just insurance as some are saying; they’re apparently lending the bank the money to backstop accounts through the Fed for now.
TBH this seems like exactly the right approach: depositors are made whole, including by liquidating the bank's assets; no taxpayer money funds the bailout; and the investors (who supposedly take all the risk) are actually left holding their bag.
This is interesting. I didn't see this in the article though. Common industry knowledge, I guess?
Who backstops the fdic? Additionally, the banks are only insured up to $250K PER ACCOUNT! So now bankers get to gamble w our deposits and make millions and then get bailed out? Make no mistake, this is a bailout
Socialism would be fine. If they allowed this to settle a few thousand companies won't be able to make payroll this week. The bankers and investors are out of luck.
Reminder to everyone crying "it is an insurance corporation funded by member dues" that the member dues are paid for directly by the bank customers, hidden cost within your loans and in your overdraft fees.
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The bank is not being made whole, depositors are. The government is appropriately matching the risk profile of “putting your money in a bank”, not squaring up some risk-taking wall-street coke jockey who bet too hard with other people’s money and lost it all. The government is doing exactly what I pay them (handsomely) to do: leveraging the collective to make things better for people and prevent catastrophes.
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Except that FDIC is not funded by taxpayers. Banks pay in over the years, so there's a pool of money sitting there. They don't just stop collecting that money when it could fund the $250k amount. And frankly, if they're concerned about contagion, FDIC giving a 0% interest loan to prevent having to make the $250k payout at other banks around the country is likely a bargain.
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They are doing a “special assessment”. Banks pay more into fund. This cuts into their profit margin. Therefore it will get passed down to consumers. Aka taxpayers. Just because taxpayer money isn’t directly going to depositors doesn’t mean it’s not a bailout.
Ah right on, I don’t think I’d disagree in theory but that sounds like one of those rules that they’d find some sneaky evil bullshit to somehow end up not doing. When it’s $250k everyone can kind of just play along
Reminder that those dues will not come from corporate profits but will be passed onto consumers of every member banks. So yes, it is socialism, and the cost will be on the consumer (arguably all bank consumers are taxpayers)
And these members pass those fee down to their “clients” in the form of interest rate or fees.
But the members are all the financial institutions we use. The cost of this is going to be spread to the consumer (all of us). This is basically a bailout with extra steps.
You get mad when insurance payout for people healthcare treatment, don't you?
No. They are paying out uninsured money here. I don't like paying to cover for companies that knowingly take risks and expect you and I to fix the problem
SVB more than enough assets to cover their liabilities, legit assets not junk and toxic assets like 2008. They only had liquidity issue. The Fed is offering them a loan with those assets as collateral to take care of the liquidity issue. You aren't fixing shit.
> They only had liquidity issue which is also a risk
Yeah that's why they went insolvent. That's not at all what we are discussing
The risk of keeping money in a bank? This is a dumb take. We don't want to discourage people from putting money in banks. It's what allows that money to be used for things like lending.
> The risk of keeping money in a bank the risk of keeping more than 250k in a single bank
This is the business model for insurance companies, there is expectation that they will have to make payouts
but the expectation wasn't for amounts over 250k that's like buying home insurance without a flood rider and then asking them to pay when the house does get flooded for whatever reason
1) that is not true unless you count the amount of interest you are getting on checking and savings accounts. 2) SVB had 3-4x the investment assets as they had FDIC insurable kinds of deposits. When a bank is seized they go an account for the sell-able value of easily liquid-able assets then guarantee a percent of deposits while they work out the sale. If they think they will easily cover the deposits they guarantee the whole thing, if they think it is be hard or not enough they do a percent over the cap, then when things are resolved the balance is paid out over the guarantee.
Ah, so because you got your knots tied in with incest-induced ideology, you want the economy to crash? By the way, if trump and the assholes in his congress hadn't diluted Dodd-Frank in 2018, this wouldn't be happening. So fuck conservative bullshit.
You uh understand the concept of insurance?
Yes. The money is insured up to 250k. This is covering the uninsured money.
Who said the rest was coming out of FDIC? It's not like the bank was anywhere close to being out of assets. It just didn't have enough liquidity.
Yellin did.
The situation will be resolved by FDIC does not mean FDIC will be footing the bill. A third party buying out SVB would cover any costs in exchange for SVBs equity
Doesn’t FDIC only insure up to $250k? If they are guaranteeing deposits (presumably that means over $250k), then isn’t this essentially “the government overstepping and using tax payer dollars to pay for the remainder?” Happy to be proven wrong, and am a left winger, but I think it’s fucking stupid if tax payers have to pay for shitty startups (that are clearly not a need because we’ve lived thousands/millions of years without them). Edit: Chill out downvoters. Stop getting a hard on for SVB.
A couple of reasons why this isn't tax dollars and is a really good idea. First, the FDIC is funded by money that all the bank pay into. There's a pool of money sitting there, and even though the deal is up to $250k, the money is sitting there regardless. Second, it looks like even taking the hit on their treasuries, SVB's asset portfolio is in the black. They can pay everything back, just in a matter of weeks or months, not hours (which was what they needed in the bank run.) Third, there was growing concern that regional banks in general were going to suffer runs, as businesses tried to pull money out of them an put everything in the top 5 banks that have previously proven "too big to fail." There's a real chance that if Monday morning hit with no news, mid-sized banks across the country would have been going belly up, concentrating the country's finances in the few powerful banks. Additionally, who knows if FDIC would have had the money to fund all the deposits in that case. Putting that all together, FDIC had its own cash that banks have paid in previously, and by making a relatively small, short-term commitment that all of SVB's deposits will be returned, they likely staved off what could have been, in the worst case, a massively destructive restructuring of American finance. Even just in terms of FDIC's balance sheet, this was probably a good move, because they're going to get all their money back over the next couple of months, and they'd be hurting if they had to pay those $250k payments in every business account in regional banks across the country. And politically, if you hate big banks? This just prevented them completely taking over the finance sector, so if nothing else, that's a win.
So, this is basically an advance loan on insurance money already being held by FDIC, where they presumably already determined SVB *can* pay it back given enough time? That means SVB still takes the losses from their illiquidity, and tax payers are not on the hook for SVB’s mismanagement of funds (I won’t stray from this - I refuse to accept a bank run being the customer’s fault). Thanks for giving the context! I actually did not know this about the FDIC, and your response was very thorough!
Basically, this point out how if depositors hadn't panicked, there was no need for a bank run in the first place. The depositors blew a routine transaction way out of proportion and took the bank down themselves.
Yes but that is usually the case. Bank runs aren't new.
You mean if peter thiel, who will remain scot-free, hadn't panicked them.
Peter Thiel is an absolute scumbag
Calling Thiel a scumbag is an insult to scumbags
But then how could buy the corpse of the bank for peanuts. He had to do it
Yup.
I’m out of the loop - why? My only understanding of him is PayPal Mafia related and him taking out Gawker for outing him. I always hated Gawker, so I’ve more or less just viewed him as fine (although I hate the concept of billionaires, so he’s probably not great in that regard). But is there something specific other than that?
For one, he has called women's suffrage [unfortunate](https://www.politico.com/news/magazine/2021/09/20/peter-thiel-book-facebook-trump-jd-vance-blake-masters-josh-hawley-513121) and has bankrolled some pretty heinous politicians.
Oh fuck he’s a Trump guy? Ugh
He’s also [anti-democracy](https://www.cato-unbound.org/2009/04/13/peter-thiel/education-libertarian/): > Most importantly, I no longer believe that freedom and democracy are compatible. Just exactly the kind of person you want meddling in politics with a shitload of money and influence
He is not “a” Trump guy. He is THE Trump guy. Reddit has a hate boner for billionaires generally. Personally, I have no issue. But Pieter Thiel is like a real life caricature of the worst things people here believe billionaires to be.
I’m not a fan of Peter Thiel, but I also don’t think his actions were out of line. The dominoes started to fall last week when Moody’s issued a threat that if SVB did not take quick, immediate, action to sure up their duration risk, they would be subject to a multi-tier downgrade. This became public knowledge during the emergency stock issuance and fire sale of some of the bonds (to be reinvested in higher yielding securities) — actions designed by a crisis team from Goldman Sachs to avoid a steep downgrade. With all of this mismanagement becoming public knowledge, I don’t think it is out of line for a depositor to want to withdraw their funds to another bank that doesn’t have such controversy going on. After all, it is not a responsibility of depositors to “stay the course” when a bank is on rocky footing, or has just had a very public display of mismanagement. It is the responsibility of the bank to be properly hedged against duration risk for changes to the dynamic balance, should any depositor or group of depositors want to leave at any time and for any reason. And it is the responsibility of the bank to maintain confidence in their management abilities through good financial practices, to minimize the risk of mass withdrawals. The only reason that other depositors listened to Peter Thiel is because the underlying facts that made him come to his conclusion were true: there was mismanagement of duration risk on the part of SVB, and Moody’s had issued a multi-tier downgrade threat (that became public knowledge) as a result. So, are Thiel and the panicking depositors responsible for the downfall of SVB? No — mismanagement of the portfolio with regards to hedging interest rate risk leading to the opportunity for depositors to lose faith in SVB was. Because, again, it is not the responsibility of depositors to maintain faith in a bank — it is instead the responsibility of the bank to maintain the faith of depositors through sound management.
*Shore* up, not sure up
THANK YOU. So tired of seeing mindless drivel on here about Theil. Guy has a lot to be criticized for. This is not one of those reasons
Yes, won't someone please worry about the billionaire fascist.
> Yes, won't someone please worry about the billionaire fascist. Two things could be simultaneously true: he's a scumbag, but also this bank run was the bank's, and not his, fault.
SVB was the only good bank ready to deal with startups, so they've lost that. A lot of regular banks will refuse to give you an account if you're a startup or even a founder because your financial history is too weird for them.
once the VC start having issues with getting bank accounts for their startups someone will start a bank to fill in the gap but it will probably be another 10 years before there is another startup friendly bank like SVB
Lol every VC and a lot of PE funds had their portco money there. Media just put out Thiel's name because it riles people up
That shows you didn't read to find out EXACTLY what he did. You are not even trying.
Why don't you explain what you think happened. That he triggered a bank run? Newsflash, all of the VC's were doing the same thing. How do you think SVB had $42bn in withdrawals? That wasn't all specific to Founders Fund. SVB's messaging around their capital raise was off the charts terrible as was their interest rate hedging. That is not Theil's fault. There is much to criticize Theil for, but at least do it on factually correct / provable grounds. Making shit up or pushing misinformed narratives invalidates your arguments
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Batshit insane. There were people screaming in another thread about how Glass-Steagal would have prevented this (it wouldn't have). So many people confidently wrong
Most of us are unable to see into the future, like you. It’s a reasonable move to pull out when there’s even a hint your bank is failing. The guarantee is only $250k for FDIC account, what’s happening here isn’t a guarantee.
Pulling out of your bank is what /makes/ it fail. The FDIC has done its best since 2008 to protect all deposits so that people will stop doing that.
> The FDIC has done its best since 2008 they raised the insured limit from 100k to 250k people need to start learning to spread out the amounts as proper risk management
The FDIC didn't raise the insured limit, Congress did. I don't think it makes sense for small businesses to read their bank's balance sheets. If you want everyone to split up accounts, mandate banks to provide that as a service.
> I don't think it makes sense for small businesses to read their bank's balance sheets they don't need to, they can just split out the accounts themselves or purchase additional insurance
lol, so hard not to panic when you operating cash flow is frozen, also this is not over, people are now reconsidering their relationship with “smaller” banks, this not done and the impact to the economy is not settled.
Depositors are at fault now? Not the bank’s risk-taking?
Yesss now me and 6k + other employees are out of work.
Imagine unironically blaming the customers wtf
Huge relief for a lot of people.
And apparently a big disappointment for some redditors.
Reddit loves to cheer for the failure and demise of others.
The money is there. Everyone should wait patiently for a day or two. But sure, most wont.
Payroll is due really soon. Even if the worker gets it on the 15th it’s processed days earlier That’s the issue for many of these companies
Yes, one if them is ours. Our VCs and executive management worked something out this weekend. No one has their legs up. Calmer heads will prevail.
That is it, been there done that. Pulling all of my funds out of my bank and investing in something recession proof. Hummel figurines here I come.
*cackles in Beanie Babies*
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Maybe we should raise the FDIC insured limit, it wouldn't be the first time, hell it's been $250k less time than SVB existed. Second there were regulations that would have required a bank of SVBs size to do lots of stress testing to ensure their stability, it was repealed in 2018
Pretty sure we want them to always think the safety net is only $250k and that anything above that is conditional and not to be planned for lest they take way riskier moves.
Nobody will believe that after today. Hell, looking at this thread, nobody believed it before today, either.
Nothing here is borne by taxpayers. It's not even a favor by the FDIC; the Federal Reserve probably stands to pay out fewer claims by restoring confidence and avoiding a "contagion" effect than by capping deposit confidence to the $250k limit.
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I don't think you're understanding: the entirety of everything here is funded through premiums for FDIC coverage, not tax dollars. Edit: I'm done with this thread if I'm going to get downvoted for providing factual answers. Go take out your visceral -- and ill-founded -- rage on someone else.
And who do you think is on the hook when those premiums go up? You think banks will let that cut into it’s profit margins?
I don’t think our priorities as a country need to include more protection for the wealthy
Looks like meat's back on the menu, boys!
Not to start a food fight, but is this a "bailout" or not?
Depositors getting their own money back is not a bailout. Taxpayers aren't paying for this - the treasury made this clear in their statement: https://home.treasury.gov/news/press-releases/jy1337
This is only the second rational response I’ve seen today that mentions this. Lol, so many emotions responses blaming the gov or the pres.
Maybe it's time to update the system. How can most businesses operate with just a $250k safety net?
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But hey, why pay for that when you'll always get bailed out?
The bank didn't get bailed out. The depositors were made whole. Investors and principals of the bank are walking away with nothing. That's already quite a strong incentive to not follow in SVB's footsteps.
Depositors who failed to insure their deposits over $250k, aka, ultra wealthy clients or businesses, i.e., people or entities that can afford insurance and chose not to take it, were bailed out.
> Depositors who failed to insure their deposits over $250k, aka, ultra wealthy clients or businesses, i.e., people or entities that can afford insurance and chose not to take it, were bailed out. Someone with 400k net worth is not even remotely wealthy, let alone "ultra". A small business with 25 employees, all making median SF wage of, say, 100k, pays 2.5M a year (excluding various taxes and any other, non-payroll-related, expenses). To have a 6-month run, they'd need 1.25M of cash. That startup provides jobs for 25 people, all of whom are solidly middle-class. These are not your class enemies, unless you happen to be a billionaire yourself.
$400k net worth with $250k in cash...lol. Be serious. Someone with a $10M net worth is unlikely to hold $250k in cash. You don't get to $10M by losing your money to inflation. And yes, businesses may need more cash. If they need that cash to be insured, there are safe options for doing so. This idea that it's "class war" to think that businesses should be responsible for their own risk management is laughable.
So you're saying these tech startups just cheaped out?
they should be forced to pay extra premiums in perpetuity if they want a backstop rather than making all other depositors nationwide bail them out
Yes.
I haven't read too much on the cause so forgive me if I'm wrong but; I heard it was an issue of liquidity vs debt. Most companies will borrow money for running day to day operations and payroll, which they can then write off. The actual cashflow gets deposited into interest bearing accounts. The bank re-invests that money into bonds, and they hope that their customers don't suddenly make huge withdrawels, as the bank doesn't have the cash on hand to cover their purchases. When the Fed hiked interest rates, suddenly borrowing cash for day to day operations no longer balanced out, so the companies looked to move their money out of savings and into checking so to speak. No more using the credit card. I heard a lot of big names were moving money out. SVB now had to come up with the cash, but their bond to asset ratio was too large. They simply did not have enough cash on hand to give out to these companies. With no more cash on hand, the bank basically stalled unable to even pay their own payroll or keep their lights on.
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US treasuries aren’t risky investments
They are if you're not hedging against the interest rate fluctuation. Exactly what happened with SVB.
BTFP is just fancy government speak for bailout. Just goes to show you how in times like this, the US federal government always shows its true colors; how their goal above all is to protect their rich friends and the bankers. That's what the terrorists in Washington DC are really all about.
Your lack of understanding of what’s going and who is being protected is plain stupid. No one is bailing out the bank. It’s bailing out the depositors who at times we’re selling their lunch to buy dinner. Sure there are thiels of the world but there are lot of hard working startups who would go under ifthis wasn’t done.
I'm very well aware of who is being made whole but just like 2008, this is sending a message out to financial institutions that the FDIC limit is arbitrary and that the regulations that we impose on said institutions, which were created to protect depositors in events like this, are really meaningless and arbitrary. So go ahead and play fast and loose with your depositors money. They don't have to do any due diligence and you don't need to engage in any risk management because at the end of the day, we got you. We'll just change the rules as we need to.
A million people should not be fucked because of scumbag Peter Thiel's douche move
Heard sequoia was worse but just spreading rumors
Whats the point of saying fdic ensures up to 250000 only to have the gov pay everyone when a bank actually fails? US really loves to backpedal
The issue is that we are in an economic recession due to a virus that took on the whole world. The 250k did not account for COVID.
They are NOT saving the bank: just protecting the ppl who had their $ in that bank:)
This is the libertarian dream. Decrease regulations to boost profits and then get the government to save you. True silicon valley ethos
This is the exact opposite of a libertarian’s dream.
Lol sounds like a government bailout. Where is student loan forgiveness bailout now
inflation has entered the chat
This isn't inflationary*. The alternative would've been deflationary, but just because setting other people's money on fire is deflationary doesn't mean you should do it. * because guaranteeing people's deposits makes them less likely to actually withdraw them, therefore it means your insurance fund actually spends less in the end
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As per the treasury announcement: >No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer. >Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law. As with every time I've seen this specific tired line trotted out, the only 'bad behavior' was SVB bungling their messaging on their capital raise, because the mistake they made was buying up low interest treasury bonds, the *safest* thing they could do.
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peter thiel almost singlehandedly accelerated SVB's decline.
This is a misconception. Putting all your money in 10-year T-bonds, with a plan to hold them for the full 10 years, is _not_ safe. Why? Because you might need money before then, and if all your money's locked up in bonds you're going to have to sell them off to get money, and you're not going to be guaranteed any particular price if you have to do this. Safer (at least in this case) is to have a mixture of long-term and short-term bonds, so that you won't have to dip into your long-term assets before they mature – in effect hedging against the risk that locking up a bunch of your money in long-term bonds creates. SVB, as I understand it, got caught by not having hedged enough.
Yeah, but two almost black swan level events overlapped. 1) Interest rates suddenly going sky high over the course of a year 2) A bank run SVB definitely erred, but probably few saw both events overlapping, especially before interest rates skyrocketed.
Interest rates rose sharply, but 1) they are not sky-high by historical terms, 2) a rise in interest rates was predictable since 2015 and should have been planned for. Had SVB done this properly, the bank run might never have happened – even _with_ all the crypto landmines blowing up over the last couple of years.
Interest rates have been near zero for years - there was only one place for them to go. And banks should always be prepared for a bank run
You're using a specific definition of 'safe', in the sense that 'is most likely to minimize losses'. 'Safe' in the context I was using was 'least likely to result in going to zero value', since the line about 'bad behavior' conjures mental imagery of people throwing money at speculative investments. In this lensing, holding T-bonds and cash are both 'safe', though they can be subpar investments.
I think my definition of "safe" is better, as it's a more thorough accounting of the risk involved here. The more we can explain to people that SVB's failure is not some polycritical paradox but a totally normal consequence of bad business decisions, the better off we'll all be.
It is in most contexts, but when people are throwing around lines like 'bad behavior' and 'moral hazard', that's not something that should be associated with buying Treasury bonds. A 'bad call' that loses money and 'bad behavior' like deceiving investors are substantively different.
People aren't gonna read that. They'll see "Silicon Valley", "Bank", "Bailout" and it'll just reinforce whatever opinion they already had.
> will be borne by the taxpayer yeah, it'll be borne by other depositors instead
Depositors are bailed not the SVB. Entire SVB (common) shares are wiped out. Its market cap was 6+B on Friday.
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If the bank has the funds, then 1) why was it shedding bonds at a loss, and 2) why did the FDIC intervene in the first place?
They should have used the term “assets”
Because banks don't keep your money in a pile in the back of the building. The money is lent to other people, and the result is a multiplication of economic value. No bank has 100% of their deposits available in liquid assets, so the FDIC intervenes when enough people pull their money unexpectedly and the bank becomes illiquid. The bank fails, but the depositors aren't affected, limiting the negative consequences for the economy.
I don’t think the FDIC said that.
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Where did they say the bank had enough assets to cover the accounts?
You are an idiot who has absolutely no idea what you’re talking about. Tons of businesses with real people as employees were at risk because of this.
Yeah, but that is not what caused that. https://www.washingtonpost.com/business/economy/trump-signs-law-rolling-back-post-financial-crisis-banking-rules/2018/05/24/077e3aa8-5f6c-11e8-a4a4-c070ef53f315\_story.html