The article is an attack on Peter Thiel, not SVB. Also seems thin on facts, and just "SVB is getting bailed out, and hence some rich guy stays rich". Given that both the Fed and the Bank of England have decades-old laws protecting the financial system long before (tech) billionaires, this article seems even more ridiculous.
> Today, the magazine is a print–digital hybrid. According to its present self-description, it has a liberal and progressive political position.[3] Jason Cowley, the magazine's editor, has described the New Statesman as a publication "of the left, for the left"[4] but also as "a political and literary magazine" with "sceptical" politics.
> The article is an attack on Peter Thiel, not SVB.
I don’t understand this comment. The article doesn’t pretend to not be an attack on people like Thiel. It’s in the title. So what’s your point—is Thiel above criticism?
And since you imply that a publication somehow automatically loses credibility on this topic by leaning left, here’s a Financial Times opinion piece with a similar premise: https://archive.is/6MBEL
The FT is also a left leaning newspaper as it has had to increasingly post 'commentary' articles to stay relevant in the 2020s. Long gone are the days of its dull hard factual reporting that was of actual utility to London traders since the rise of the internet.
I had no 'point' other than to state that the article headline was misleading, the content was weak at best with sound bite quotes and zero context.
I referenced the wikipedia article so that non-UK readers have some context regarding the publication.
Thiel is entitled to a lot of criticism, but this is dumbest possible criticism. If Thiel took his money out of SVB, then he didn't receive a bailout. That's 100% consistent with libertarianism. But then he's a hypocrite because he's a "tech bro" and some other "tech bros", who the article makes no effort to explain why they are libertarian, asked for bailouts.
> since you imply that a publication somehow automatically loses credibility on this topic by leaning left
Funny how so many of the replies are shocked by this idea when virtually every single story posted to HN from a right leaning outlet is flooded with comments of the form "you can't trust this story, it comes from a right leaning outlet" and the post itself will often be quickly flagged to death. What goes around comes around.
Not to speak for OP, but I think the point is obvious. Silicon Valley culture is liberal to progressive, not libertarian. That means more government intervention is the norm in the industry, not less. Thiel is more of an exception in that regard.
The entire premise that Silicon Valley has a libertarian culture is flawed, which is they the article can't back it up.
I don't know what your last paragraph is supposed to imply. That there shouldn't be outlets for the Left? That there shouldn't be outlets with stated political positions at all? Or it's just a basic ad hominem?
Anyway, as for the substance: a bank had risky behaviour and lost out. Now everyone, including those who never did and never will benefit from that risk, are called to pick up the check. This is, objectively speaking, a transfer of wealth from the poor to the rich.
Now you may justify that with trickle-down economics, but I'm not arguing that point, and neither is the writer. He is merely pointing out how the "leave free enterprise alone" crowd is now suddenly in favour of handouts :)
> That there shouldn't be outlets with stated political positions at all?
What a wonderful concept, a news organization that just spits dry facts and doesn’t spin at all. Kinda like Axios. We really should use AI to write unbiased news articles and fire all the journalists who can’t get rid of their biases. The world would overnight be a better place.
> I don't know what your last paragraph is supposed to imply.
It's pointing out that the left hates libertarianism and Peter Thiel, leftism is literally the opposite of libertarianism, and so you would expect a left wing news outlet to try and trash Thiel and libertarians whether or not the argument makes any sense or whether it's actually their fault. It's a bias warning.
Oh please. You know exactly what the article is saying. You chose to attack the publication instead of their arguments which boils down to Thiel and friends are very much anti-regulation and if it wasn't their money they would resist government interference. Perhaps you could talk about the quoted comments from those billionaires and correct the article?
As far as I know, haven't seen any tweet/quote from Peter Theil asking for a bailout. Shouldn't the onus be on the article author to do more research on their primary target. Can't blame him for being friends with people who asked for it.
Anti-regulation on the business side, their political donations show they are very much into regulations when it comes to people and ideas that aren't "typical" and or "straight".
> Perhaps you could talk about the quoted comments
All the quotes are barely one sentence, and with zero context, and no link back to when or where they were said. I know modern journalism is lazy and just quotes tweets, but the author could have put a bit more effort in.
> when Zuckerberg came up with his mantra, “move fast and break things”, he didn’t just mean code.
> Thiel himself is so committed to libertarianism that he has established an eponymous foundation to “defend and promote freedom”
> Larry Page, the co-founder of Google, has previously suggested a “limit” on laws to “some set of pages”. “When you add a page, you have to take one away,” he said.
> “This is an extinction level event,” warned Garry Tan, the CEO of Y Combinator.
> “Where is [the chairman of the Federal Reserve, Jay] Powell? Where is [the Treasury secretary, Janet] Yellen? Stop this crisis NOW,” tweeted the venture capitalist David Sacks
> Given that both the Fed and the Bank of England have decades-old laws protecting the financial system long before (tech) billionaires, this article seems even more ridiculous.
Those laws don't insure deposits over $250,000. The response to SVB is relatively novel in some ways.
It's ok to point out this is a left wing magazine, but the "investigation results" pasting is over the top and just indicates potential lack of balance in the rest of the comment...
I really don't understand the argument against Thiel. He might have help cause the bank run ... but he used his own influence in the market to withdraw all of his money. He took matters into his own hands without leveraging government intervention, right? That sounds as libertarian as it gets. What am I missing?
Yeah, the article opens with Thiel but doesn't actually claim he did anything wrong. It then shifts to comments by David Sacks "who is a friend of Thiel" for hypocrisy in comments. Which, I think, might be fair to say of Sacks but not really fair to attribute to Thiel at all, or to the valley in general.
In defense of the article, it never directly states that Thiel is a hypocrite. He's at first included just because it lists actions he took. But there's an obvious implication being made later, and not just because of the title. That said, I think Thiel's anti-democracy views ("I no longer believe that freedom and democracy are compatible") are terrible and worthy of criticism for different reasons altogether.
Yikes. I mean I would agree with him if he said that libertarianism and democracy are incompatible, but most libertarians I've met are much more self-deluded about the fact that this is what their view boils down to.
The fact that he states the fundamental logical issue with his ideology so clearly and at the same time in defence of it, is fascinating.
This is a classic prisoner's dilemma. Thiel just happened to be one of the first VCs to tell portfolio companies to get their money out. If [another VC name] had done so, it'll be their name on these articles. The point being, whoever went first avoided massive pain, so someone would've started it.
A standard straw man for the political left is, "These people are libertarian, look how un-libertarian they are!" ignoring all of the evidence and facts.
Well because it's true. It's beyond clear that the rich get bailed out. It's libertarianism on the way up, socialism on the way down, but only for the rich.
Would that we respond as fast to the needs of ordinary people as to SVB depositors.
There was no panic to begin with - in the worst case scenario, the cut for depositors was definitely less than 10%, most probably 0.
The Jason Calacanis, David Sacks & co, decided that even that small % of losses were enough to start a bank run in order to get government involved - and make sure they are made whole.
Stress on 'THEY'. Just look at their recent tweets - did Mark Cuban said today that unlimited FDIC is a very bad thing - should 'Never' be a thing ? Amazing stuff. (edit: Here is the link => https://twitter.com/mcuban/status/1635282882259476486?s=20 )
Make no mistake - the 3 banks in trouble (there will be more. Once the fire is lit, it's hard to stop it) were extremely specific and were crypto / VCs banks. It's not random banks that failed. They failed specifically because of business they were servicing.
I agree, and I see three fallouts from this event:
- Yellen folded fast, so the market will test her again (moral hazard)
- Powell will hesitate to raise rates further, concerned about hidden stresses building up in the system. This was basic duration risk, and the fact that they missed it entirely will raise the worry of what else they are missing.
- FDIC will probably have to be reformed. You cannot guarantee everything, all the time. Maybe an opt in system where large depositors can buy individual coverage.
Powell and Yellen put a system in place over the weekend where all banks can borrow against their bonds at par, thereby preventing any other bank runs.
The duration problem is that banks have bonds/CDOs on their books marked-to-maturity, but when faced with outflows banks are forced to sell them at market prices (much lower because interest rates went up). This turns an illiquidity problem into an insolvency problem if a bank bought too many low interest long duration bonds.
Last week, when a bank had balance sheet consisting of bonds with a market price of $75 but valued at $100 marked-to-maturity they would get into trouble when faced with too many withdrawals. Today, they can borrow $100 from the Fed at a modest interest rate with the bond worth $75 as collateral. This fixes the bank run problem, because the bank can go to the fed to get the money they need to cover any outflows. This deal only covers quality bonds and only those bought before last week. This fix is not an invitation to start lending recklessly, it's just a stopgap measure to allow banks to lose money slowly on the bad debt they already have.
This all means Powell can continue to raise interest rates without having to worry too much about bank failures.
But it's not everything, not even close. It's only the amounts deposited in the standard class of bank accounts. Companies with large amounts of cash keep very little of that in bank accounts, it's in money market funds and other cash-equivalents.
It's certainly feasible and possible to have the "risk" part of the bottom of the risk-reward curve to be at the same level as the viability of the federal government. The risk isn't quite 0, but if the federal government collapses you have bigger problems anyways.
Especially in a high interest rate environment. Bank accounts essentially have a 0% nominal rate, which in a high interest rate environment is a very negative real rate so there is lots of margin for implicit or explicit insurance.
If we have to buy insurance to insure our money, the financial sector will just game that, too, and make even riskier bets. That we (taxpayers) end up paying for.
Changing the rules during the game (full deposit insurance, one off advantageous loans to troubled banks) also erodes the moral by standing firmly behind reckless and risky (risky for the masses not self!) behaviour and entities, unlike the rest! For the rest the ordinary rules apply.
Not with 2 though. The BTFP (not to be confused with BTFD :) ) program is removing completely the duration risk (for a year). This lets the FED raise the rates as high as they want without putting banks balance sheets at risk (barred some other unforeseen consequences).
The regulators failed massively, allowing banks to mask their duration losses. Obviously this needs to change, but they probably need to fix the other banks first (that are still hiding their losses).
Why? Isn't the guaranteed deposits above 250k mainly 'insured' through Fed offering unlimited loans back by the nominal price of bonds owned by affected banks?
> - FDIC will probably have to be reformed. You cannot guarantee everything, all the time
You absolutely can (should is the question)?
The second question is whether you want depositors to care about the financial health of their banks or not. I'm on the no side of that conversation. So you let regulation take care of the capital requirements and so on whilst allowing people to feel safe with deposits.
Yellen folded? What does this really mean? The “market” will test her how? The market is only interested in pnl. Insolvent banks are a great place to make a trade. Hardline central bank policy (Japan) would be a place to make a trade. Treasury secretary and deposit insurance? I don’t know what you see there.
> FDIC will probably have to be reformed. You cannot guarantee everything, all the time.
Why can't you when you can literally print money? Just banks will have to be forced to pick up the tab for that, by limiting their money printing ability so that in case of emergency it can be safely printed.
Dollar deposits in a bank should be 100% safe operation regardless of the amount.
And investors can burn. Every investor is reaponsible for their own risk.
Why not? What’s keeping the Fed from working with Treasury and the FDIC to provide unlimited liquidity as needed for deposits? No doubt there will be higher order consequences, but I don’t know of any operational reason why it isn’t possible so long as the current monetary regime exists at all.
Yellen has always been too quick to fold, and we saw that in her time as fed chair. Wall Street and silicon Valley insiders know this, which might be why they immedieately tried to put their PR campaign's focus on her (rather than Jerome Powell, who is a little bit steadier at the poker table).
"They failed specifically because of business they were servicing."
I don't think so. All banks are facing major markdown issues right now due to the Fed raising rates. SVB and the crypto banks were just canaries in the coal mine.
First Republic also needed a bailout even though they're a lot more diversified in their client base.
so they expected rates to stay at near zero indefinitely? It's obvious the banks did a bad job on their analysis. It seems like everyone but these banks knew the spigot of easy money was going to stop sooner or later. It just wasn't sustainable.
All banks have markdown issues, but SVB had liquidity issues due to the businesses they were serving, i.e. they served cash burning machines so naturally hit liquidity issues. The other banks, like First Republic, also have issues but might not have had a problem if not for the loss of confidence caused by SVB's collapse.
Why didn't The Fed anticipate the downside of their actions?
Follow up by: Isn't The Fed supposed to prevent bank failures, not cause them?
Mind you, there are other (loop) holes that enable such things. Nonetheless, are these random-y bank failure or failures of The Fed and its associated regulatory friends?
> They failed specifically because of business they were servicing.
This is so disingenuous. They failed because they made risky investments, interest rate hikes put their investments in jeopardy, and when they tried to raise extra capital (responsible thing to do), people were alerted of the problem and left the bank (responsible thing to do).
I used to think that it was entirely about the risky investments, but $42 billion left SVB (which managed about $200 billion in total) in 2 days. Literally no bank today could withstand a bank run for 20% of its asset base.
It's part of the story. They had a non-diverse group of interconnected customers prone to herd behaviours led by a small influencer elite. Few banks represent such a high risk of a run.
These guys only started all caps tweeting after the bank was closed on Friday. The bank run started on Thursday when $42B (20-30% of all deposits) were withdrawn.
The run they were tweeting about was a wider one on all regional banks. Did not happen at time of their tweets, they were speculating about the future.
Why was it the VCs impacted by the SVB collapse, and not the wider banking world, who stood to lose more, who were loudest to make that claim?
If you're of the opinion that their Tweets (ignoring what may or may not have happened in certain private chats leading up to) did not lead to the public start of SVB's bank run, maybe? How much pressure did this add on regulators to act NOW to avert an IMMEDIATE and CATASTROPHIC COLLAPSE?
However, is it really a stretch to say that those Tweets may have downstream effects on other banks?
SVB failed because of an interest rate bet gone bad. If they invested in short duration treasuries instead of long duration, none of this would have happened. The main difference is their bonuses would have been lower the past few years.
They couldn’t afford to keep treating founders and VCs like personal royalty[0]: the yields were too low. But they feared what would happen if they stopped. So they made a bad bet to cover the extra expense.
"This will cause a bank run, so you gotta a make a run on the bank to get your money first."
I mean, I kind of get it. That first 10% could very likely be people who know something you don't. So you use it as an indicator. But then the very perception of instability causes that same instability.
> there will be more. Once the fire is lit, it's hard to stop it)
For now bonds yields have come down significantly so most banks in a similar situation should be in a much safer position until/unless yields start going back up again.
A bank should keep the money secure. Anything >0% loss is unacceptable. They were greedy and had a duration mismatch. Interest rates rise and the value of the longterm bonds go down. The regulators should have stepped in and stopped that. Why didn't they?
No one should be made whole. Looks like the stock holders will have a 0 and bond holders will take a significant cut. Depositors will be safe.
The executives should all be in prison for this. Only have to do this once. The other banks would wisen up and get their act together.
> A bank should keep the money secure. Anything >0% loss is unacceptable.
You're wrong about this part at least. Borrowing short and lending long is what banks do (among other things). The alternative is either:
- banks asking for 10+ year time deposits to match your 10+ year mortgages , or
- banks only willing to do mortgages that are < 1 year
The risks can be managed somewhat, and SVB *definitely* were too greedy (and stupid), but you're mistaken if you think the other banks are qualitatively different than SVB in their exposures to interest rate risks...
That's why most bank's stocks are down. Most people don't think they will fail, but recent events do highlight that they have a bunch of long term securities that lost value.
Dumb question but is just keeping customers funds without investing them (even in bonds) and just collecting fees not a viable business model for banks? Is it a necessity or greed?
What about the CFOs and wealthy individuals that where just bailed out ?
Shouldn't they were in prison (the CFOs, for wealthy individuals - it's just their money) too ? They were fully aware of the 250k$ limit of FDIC insurance.
> were extremely specific and were crypto / VCs banks. It's not random banks that failed. They failed specifically because of business they were servicing.
Agree.
Now that the crypto industry in the US have no banks supporting them, perhaps it is time for crypto completely die (and it should) which should reduce the amount of VCs fueling the ponzi scheme.
Most of the scams in crypto probably don't need direct banking services because they aren't running long-term businesses, just quick marketing schemes to pump their token value before cashing out. Unless exchanges world wide are shutdown, this are unlikely to stop.
There are plenty of non-scam blockchain companies that aren't hurting anyone, just building interesting tech. I don't see any reason other than personal bias to want those startups to be debanked since they aren't any worse than the typical startup.
In this case it's the banking system having a crisis (perhaps revealing some Ponzi-like elements). Surely that is a boost to the crypto bros, in the abstract at least.
The bank had long term bets if government bonds that after the rate change massively weakened their value, threatening the bank’s capitalisation levels. This has nothing to do with their clients.
SVB was the only bank (or maybe one of the only banks) that allowed anyone to set up a bank account with them without visiting the country - they were a part of Stripe Atlas.
That sounds great in a libertarian, everything goes world. But the reality is that there are plenty of bad actors and they will abuse it to launder money and commit fraud. Every other bank was conservative enough to avoid this by enforcing some basic in-person kyc/aml processes.
But not SVB. If you were banking with them, you should have asked yourself at least once: why is my bank doing something no other bank does? And is my money as safe there as it would be with a more conservative bank?
Why take a random small program being run at the bank, and imply that it was somehow linked to their failure, when their failure is well understood and has nothing to do with the Atlas program?
I wonder if this behavior will lead banks to be even less likely to take on startups as clients in the future.
edit: in an attempt to be more clear, I thought the reason SVB was used by startups was because "regular" banks were not open to startup finances. Is this not the case?
There's clearly a lot of pent up anger directed at VCs and big tech. The collapse of SVB may not actually be their fault, but it still seems to have brought all of this frustration out into the open. I'm not really sure why there is so much anger - yes they were hypocritical here but I'm not sure people would be so keen to point that out if they didn't already have an axe to grind!
I can offer an explanation, but I am not sure how accurate that is. As I tried to explain to my friends in different industry what has, apparently, happened, their eyes quickly glazed over. There seems to be a lot of confusion floating around and no clear 'bad guy' to blame ( I have a pet theory about this, but this may be a bad time to introduce it ).
<< if they didn't already have an axe to grind!
Absolutely correct. Based on what I heard so far, adherents of each political spectrum in US went to their respective corners with their specific talking points. Super annoying as it only adds to the confusion ( its not like we have a systemic risk on our hands ).
These people pretend to be the stewards of innovation, bringing society forward by building great new technologies but in reality they are just rich gamblers who have no interest in building anything, and the last few years have devoted their efforts to pumping and dumping garbage companies on the public in the form of IPOs/SPACs.
And now their bank, which behaved recklessly, failed and they suffer no consequences, the costs of 100% deposit insurance offloaded onto every other sector of the economy.
How is it not their fault ? The Bank run was caused by VC's telling their portfolio companies to pull their funds based on a weak signal. Raising money shouldn't have been enough to cause this kind of panic.
Sure if they'd all left their money there then nothing would have happened, but on the other hand, if a company has a large uninsured deposit at an under-capitalised bank, leaving the money there is arguably irresponsible. I don't really blame them for moving their cash elsewhere.
For all the articles posted on HN in the past 24hrs, none of them are the Business Insider piece. It explains the axe that's being ground rather eloquently, so avail yourself of that.
I don't like the idea of millionaires who make bad decisons being bailed out either, but it's not clear that is what is happening here.
Firstly not clear that this is really a bail-out in the usual sense. No tax-payer money is going to these millionaires, and any costs (if there are any, which isn't entirely clear) are going to go to other banks and their shareholders.
Secondly not clear that depositing money in SVB was a "bad decision" - doing this wasn't a risky thing VCs did to try and get rich.
Non-rich people get bailed out constantly. What else is unemployment, Medicaid, welfare, social security, etc? Plus things like eviction moratoriums, foreclosure protection, FMLA, etc. The social safety net often protects those that made bad life decisions… or were just unlucky, but are we sure SVB isn’t in the latter category?
To be clear, I think it’s a good thing. Just let’s not pretend the government is only ever helping the rich.
Edit: you've been breaking the site guidelines a great deal and we've already warned you a bunch of times. If this keeps up, we're going to have to ban you.
To be clear I wasn't trying to say people shouldn't be angry with VCs. I'm expressing some doubt that the reason for the anger is SVB's collapse or their hypocrisy around it. Whether you like VC or not, they aren't responsible for the SVB's investment choices or its undercapitalization and so the outflow of anger following SVB collapse feels misplaced. (Edited for clarity)
Probably because VCs and big tech are one of the largest democratic donation bases and thus, the issue is politicized, because, from the outside, it looks like a democratic administration taking unprecedented steps towards ensuring the financial health of their own donation base. One wonders if the action would be as swift if this were a farming bank in Ohio, for example.
As an aside, I wonder when making allegations without proof based on speculation and partisan hate will fall out of fashion? I speculate that it continues to happen because people don't have a killfile anymore, and so trolls always have a new audience to lie to.
> Any depositor who could read the WSJ or watch the stock ticker could understand that there was no upside in waiting to see what would happen next.
The whole point of regulations is precisely that I don't have to read a journal or scrutinise a stock ticker to watch my money. As it turns out I have more productive and useful ways to spend my time. Maybe he doesn't have anything better to do all day; but pretending that regulation are not needed because there is some way for some people to get some insight about what's going on under the hood is just not a receivable argument.
> but pretending that regulation are not needed because there is some way for some people to get some insight about what's going on under the hood is just not a receivable argument.
What are you going on about?
If you listen to the All-in-podcast, where Sacks and the other guys talked about what happen, they actually point out that the problem was improper regulation that allowed banks to get in that state in the first place.
The main counterpoint (to this article, he seems to mainly talk about others) seems to be "it was no bailout", and "insuring 100% of deposits is small government and totally logical for me as a stance". The former I can see, the latter I’ll have to put clearly in the article’s column.
How much money does the government spend on insuring deposits? Seems like it’s less than one day of social security or military spending. So I find it hard to argue that deposits insurance alone makes the government ‘big’
The points Sacks makes there contain some truth but, make no mistake, they are selectively chosen and completely self-serving.
1. Talk of inflation doesn't mention a way more effective tool for tackling it: taxation. Inflation is offhandedly blamed on the government too for not being "transitory". Sacks is actually torn here. Non-zero interest rates hurt the VC model but as a rich guy he certainly doesn't want, say, a corporate windfall profits tax;
2. He claims he wanred about pumping trillions of dollars into the economy. Why 2 years ago and not 14-15 years ago when the zero-interest QE started? What's the difference? Oh, who got the money in 2020? This is part of a consistent narrative from rich people that it's only ever a problem when poor people get government money. Then it's a moral hazard.
3. Further to the "2 years ago" narrative, we should remember that Covid relief started under Trump, not Biden. So why not "3 years ago"? Is Sacks trying to avoid criticizing Trump? Weird. I wonder why.
Inflation is too much money chasing too little stuff. Taxation is less money that the people have, but more money that the government has. If the government just set the money on fire, that would help with inflation, but they won't. They'll spend it. At that point, we will have the exact same amount of money chasing the exact same amount of stuff; the only difference will be who has the money. So we'll have the same amount of inflation, but people (and businesses) will have less money to try to deal with the inflation. That doesn't sound like an answer at all.
Inflation is caused by printing too much money. Taxation does not directly reduce inflation (I suppose you could argue some indirect effect since it means the government will need to print less but then there are other secondary effects we would need to include, etc)
Funny. First "its collapse was first and foremost a result of its own poor risk management and communications" and then a looong rant how it actually was fault of Biden, Democrats and loose monetary policy.
So far I have not seen any evidence that the real reason was anything but "poor risk management and communications" A couple of percentage points change in interest rates is not a thing that should bring your bank down. If it does, you have failed, no excuses.
> A couple of percentage points change in interest rates is not a thing that should bring your bank down. If it does, you have failed, no excuses.
In context, it's even more egregious — Rates after that "couple of percentage points change" are still historically quite low, it's just that we've had a completely aberrant run of near-zero rates for the last decade or so. It was a matter of time until this correction happened, so preparedness was about "when", not "if", it happened.
The democrats and minorities forced them to hire conservative lobbyists to weaken regulation, then forced them to refuse to hedge their interest rate risk.
Yeah, personally I'd trace it back to the 2020 covid money printing mania, or even the 2019 (nearly) negative interest rates. I do think he's right to blame the rate hikes, and in turn, the inflation that necessitated them. But he does skip over the fact that these rate hikes shouldn't have been a surprise. The bankers had poor risk management by not considering the effect the rate hikes would have on their long duration bonds. And frankly, Sacks misses an opportunity here to shift blame to the bankers, who IMO are the real cause of the crisis (as always).
When I started a company in Denmark, we were made very aware that we were not insured by the national depositors insurance schema and that we had no protections.
We were offered to buy insurance for e-banking theft and other types of fraud _and_ insurance for our deposits.
Is it really the case, that Americans assume to have all these sorts of insurances taken care of automatically?
“On June 16, 1933, President Franklin Roosevelt signed the Banking Act of 1933, a part of which established the FDIC. At Roosevelt's immediate right and left were Sen. Carter Glass of Virginia and Rep. Henry Steagall of Alabama, the two most prominent figures in the bill's development”
> Is it really the case, that Americans assume to have all these sorts of insurances taken care of automatically?
For consumers, yes. For businesses, this falls under the "treasury management" responsibilities of the CFO position.
If they make this assumption (i.e. by foregoing insurance, T-bill ladders, etc.), they're a poor fiduciary. The VCs and relatively mature startups that stood to lose money in the last week have come out of this looking really bad to the adults in the industry.
Readit News
Context: https://en.wikipedia.org/wiki/New_Statesman
> Today, the magazine is a print–digital hybrid. According to its present self-description, it has a liberal and progressive political position.[3] Jason Cowley, the magazine's editor, has described the New Statesman as a publication "of the left, for the left"[4] but also as "a political and literary magazine" with "sceptical" politics.
I don’t understand this comment. The article doesn’t pretend to not be an attack on people like Thiel. It’s in the title. So what’s your point—is Thiel above criticism?
And since you imply that a publication somehow automatically loses credibility on this topic by leaning left, here’s a Financial Times opinion piece with a similar premise: https://archive.is/6MBEL
I had no 'point' other than to state that the article headline was misleading, the content was weak at best with sound bite quotes and zero context.
I referenced the wikipedia article so that non-UK readers have some context regarding the publication.
Funny how so many of the replies are shocked by this idea when virtually every single story posted to HN from a right leaning outlet is flooded with comments of the form "you can't trust this story, it comes from a right leaning outlet" and the post itself will often be quickly flagged to death. What goes around comes around.
The entire premise that Silicon Valley has a libertarian culture is flawed, which is they the article can't back it up.
Anyway, as for the substance: a bank had risky behaviour and lost out. Now everyone, including those who never did and never will benefit from that risk, are called to pick up the check. This is, objectively speaking, a transfer of wealth from the poor to the rich.
Now you may justify that with trickle-down economics, but I'm not arguing that point, and neither is the writer. He is merely pointing out how the "leave free enterprise alone" crowd is now suddenly in favour of handouts :)
What a wonderful concept, a news organization that just spits dry facts and doesn’t spin at all. Kinda like Axios. We really should use AI to write unbiased news articles and fire all the journalists who can’t get rid of their biases. The world would overnight be a better place.
It's pointing out that the left hates libertarianism and Peter Thiel, leftism is literally the opposite of libertarianism, and so you would expect a left wing news outlet to try and trash Thiel and libertarians whether or not the argument makes any sense or whether it's actually their fault. It's a bias warning.
Anti-regulation on the business side, their political donations show they are very much into regulations when it comes to people and ideas that aren't "typical" and or "straight".
All the quotes are barely one sentence, and with zero context, and no link back to when or where they were said. I know modern journalism is lazy and just quotes tweets, but the author could have put a bit more effort in.
> when Zuckerberg came up with his mantra, “move fast and break things”, he didn’t just mean code.
> Thiel himself is so committed to libertarianism that he has established an eponymous foundation to “defend and promote freedom”
> Larry Page, the co-founder of Google, has previously suggested a “limit” on laws to “some set of pages”. “When you add a page, you have to take one away,” he said.
> “This is an extinction level event,” warned Garry Tan, the CEO of Y Combinator.
> “Where is [the chairman of the Federal Reserve, Jay] Powell? Where is [the Treasury secretary, Janet] Yellen? Stop this crisis NOW,” tweeted the venture capitalist David Sacks
Those laws don't insure deposits over $250,000. The response to SVB is relatively novel in some ways.
Dead Comment
In defense of the article, it never directly states that Thiel is a hypocrite. He's at first included just because it lists actions he took. But there's an obvious implication being made later, and not just because of the title. That said, I think Thiel's anti-democracy views ("I no longer believe that freedom and democracy are compatible") are terrible and worthy of criticism for different reasons altogether.
The fact that he states the fundamental logical issue with his ideology so clearly and at the same time in defence of it, is fascinating.
This is a classic prisoner's dilemma. Thiel just happened to be one of the first VCs to tell portfolio companies to get their money out. If [another VC name] had done so, it'll be their name on these articles. The point being, whoever went first avoided massive pain, so someone would've started it.
https://reason.com/2023/03/13/everyone-is-learning-the-wrong...
Would that we respond as fast to the needs of ordinary people as to SVB depositors.
I suspect “insolvent” is probably an adequate synonym anytime you have to use a qualifier word on “solvent”.
There was no panic to begin with - in the worst case scenario, the cut for depositors was definitely less than 10%, most probably 0.
The Jason Calacanis, David Sacks & co, decided that even that small % of losses were enough to start a bank run in order to get government involved - and make sure they are made whole.
Stress on 'THEY'. Just look at their recent tweets - did Mark Cuban said today that unlimited FDIC is a very bad thing - should 'Never' be a thing ? Amazing stuff. (edit: Here is the link => https://twitter.com/mcuban/status/1635282882259476486?s=20 )
Make no mistake - the 3 banks in trouble (there will be more. Once the fire is lit, it's hard to stop it) were extremely specific and were crypto / VCs banks. It's not random banks that failed. They failed specifically because of business they were servicing.
- Yellen folded fast, so the market will test her again (moral hazard)
- Powell will hesitate to raise rates further, concerned about hidden stresses building up in the system. This was basic duration risk, and the fact that they missed it entirely will raise the worry of what else they are missing.
- FDIC will probably have to be reformed. You cannot guarantee everything, all the time. Maybe an opt in system where large depositors can buy individual coverage.
The duration problem is that banks have bonds/CDOs on their books marked-to-maturity, but when faced with outflows banks are forced to sell them at market prices (much lower because interest rates went up). This turns an illiquidity problem into an insolvency problem if a bank bought too many low interest long duration bonds.
Last week, when a bank had balance sheet consisting of bonds with a market price of $75 but valued at $100 marked-to-maturity they would get into trouble when faced with too many withdrawals. Today, they can borrow $100 from the Fed at a modest interest rate with the bond worth $75 as collateral. This fixes the bank run problem, because the bank can go to the fed to get the money they need to cover any outflows. This deal only covers quality bonds and only those bought before last week. This fix is not an invitation to start lending recklessly, it's just a stopgap measure to allow banks to lose money slowly on the bad debt they already have.
This all means Powell can continue to raise interest rates without having to worry too much about bank failures.
But it's not everything, not even close. It's only the amounts deposited in the standard class of bank accounts. Companies with large amounts of cash keep very little of that in bank accounts, it's in money market funds and other cash-equivalents.
It's certainly feasible and possible to have the "risk" part of the bottom of the risk-reward curve to be at the same level as the viability of the federal government. The risk isn't quite 0, but if the federal government collapses you have bigger problems anyways.
Especially in a high interest rate environment. Bank accounts essentially have a 0% nominal rate, which in a high interest rate environment is a very negative real rate so there is lots of margin for implicit or explicit insurance.
Rules don't metter from now on or what?!
Not with 2 though. The BTFP (not to be confused with BTFD :) ) program is removing completely the duration risk (for a year). This lets the FED raise the rates as high as they want without putting banks balance sheets at risk (barred some other unforeseen consequences).
The regulators failed massively, allowing banks to mask their duration losses. Obviously this needs to change, but they probably need to fix the other banks first (that are still hiding their losses).
Q: Aren't large depositors already free to buy individual coverage from whomever offers it?
Why? Isn't the guaranteed deposits above 250k mainly 'insured' through Fed offering unlimited loans back by the nominal price of bonds owned by affected banks?
You absolutely can (should is the question)?
The second question is whether you want depositors to care about the financial health of their banks or not. I'm on the no side of that conversation. So you let regulation take care of the capital requirements and so on whilst allowing people to feel safe with deposits.
Why can't you when you can literally print money? Just banks will have to be forced to pick up the tab for that, by limiting their money printing ability so that in case of emergency it can be safely printed.
Dollar deposits in a bank should be 100% safe operation regardless of the amount.
And investors can burn. Every investor is reaponsible for their own risk.
Why not? What’s keeping the Fed from working with Treasury and the FDIC to provide unlimited liquidity as needed for deposits? No doubt there will be higher order consequences, but I don’t know of any operational reason why it isn’t possible so long as the current monetary regime exists at all.
FDIC does not guarantee everything all the time, that's the whole reason for what happened at these banks being controversial.
I don't think so. All banks are facing major markdown issues right now due to the Fed raising rates. SVB and the crypto banks were just canaries in the coal mine.
First Republic also needed a bailout even though they're a lot more diversified in their client base.
Edit: before you downvote, please read this analysis by our friend patio11 - https://www.bitsaboutmoney.com/archive/banking-in-very-uncer...
TLDR: The U.S. banking system (as a whole) has $620 billion in unrealized losses due to the Fed raising rates. This is way bigger than SVB and crypto.
Translation: due to the banks not being sufficiently stress-tested to assure resiliency under reasonable rate fluctuations.
so they expected rates to stay at near zero indefinitely? It's obvious the banks did a bad job on their analysis. It seems like everyone but these banks knew the spigot of easy money was going to stop sooner or later. It just wasn't sustainable.
Why didn't The Fed anticipate the downside of their actions?
Follow up by: Isn't The Fed supposed to prevent bank failures, not cause them?
Mind you, there are other (loop) holes that enable such things. Nonetheless, are these random-y bank failure or failures of The Fed and its associated regulatory friends?
This is so disingenuous. They failed because they made risky investments, interest rate hikes put their investments in jeopardy, and when they tried to raise extra capital (responsible thing to do), people were alerted of the problem and left the bank (responsible thing to do).
Why was it the VCs impacted by the SVB collapse, and not the wider banking world, who stood to lose more, who were loudest to make that claim?
1. firearms
2. people needing to be terrified
3. bank runs
If you're of the opinion that their Tweets (ignoring what may or may not have happened in certain private chats leading up to) did not lead to the public start of SVB's bank run, maybe? How much pressure did this add on regulators to act NOW to avert an IMMEDIATE and CATASTROPHIC COLLAPSE?
However, is it really a stretch to say that those Tweets may have downstream effects on other banks?
[0] Video of Jason Calacanis expounding on his love of royal treatment by SVB: https://twitter.com/one4thecashbag/status/163533710637676953...
Even if the worst case scenario was only losing 10% of deposits, that's a very good reason to remove your money.
But in reality, everyone knows this will trigger a bank run, which will lose much more, so the only thing that matters is to get out ahead of it.
This is just the inherent logic of the situation, not the fault of whoever realized it first.
I mean, I kind of get it. That first 10% could very likely be people who know something you don't. So you use it as an indicator. But then the very perception of instability causes that same instability.
https://twitter.com/one4thecashbag/status/163533710637676953...
For now bonds yields have come down significantly so most banks in a similar situation should be in a much safer position until/unless yields start going back up again.
No one should be made whole. Looks like the stock holders will have a 0 and bond holders will take a significant cut. Depositors will be safe.
The executives should all be in prison for this. Only have to do this once. The other banks would wisen up and get their act together.
You're wrong about this part at least. Borrowing short and lending long is what banks do (among other things). The alternative is either:
- banks asking for 10+ year time deposits to match your 10+ year mortgages , or
- banks only willing to do mortgages that are < 1 year
The risks can be managed somewhat, and SVB *definitely* were too greedy (and stupid), but you're mistaken if you think the other banks are qualitatively different than SVB in their exposures to interest rate risks...
That's why most bank's stocks are down. Most people don't think they will fail, but recent events do highlight that they have a bunch of long term securities that lost value.
Shouldn't they were in prison (the CFOs, for wealthy individuals - it's just their money) too ? They were fully aware of the 250k$ limit of FDIC insurance.
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Agree.
Now that the crypto industry in the US have no banks supporting them, perhaps it is time for crypto completely die (and it should) which should reduce the amount of VCs fueling the ponzi scheme.
Most of the scams in crypto probably don't need direct banking services because they aren't running long-term businesses, just quick marketing schemes to pump their token value before cashing out. Unless exchanges world wide are shutdown, this are unlikely to stop.
There are plenty of non-scam blockchain companies that aren't hurting anyone, just building interesting tech. I don't see any reason other than personal bias to want those startups to be debanked since they aren't any worse than the typical startup.
Thing is, this bank was servicing people basically juicing the system of free money. This cut both ways.
That sounds great in a libertarian, everything goes world. But the reality is that there are plenty of bad actors and they will abuse it to launder money and commit fraud. Every other bank was conservative enough to avoid this by enforcing some basic in-person kyc/aml processes.
But not SVB. If you were banking with them, you should have asked yourself at least once: why is my bank doing something no other bank does? And is my money as safe there as it would be with a more conservative bank?
There are plenty of others, Ally being the next off the top of my head. This doesn’t, at all, free you from AML or KYC.
Well, that's an easy answer in techbro circles: because it's the smartest one, duuh.
edit: in an attempt to be more clear, I thought the reason SVB was used by startups was because "regular" banks were not open to startup finances. Is this not the case?
I am surprised there is so little anger.
I can offer an explanation, but I am not sure how accurate that is. As I tried to explain to my friends in different industry what has, apparently, happened, their eyes quickly glazed over. There seems to be a lot of confusion floating around and no clear 'bad guy' to blame ( I have a pet theory about this, but this may be a bad time to introduce it ).
<< if they didn't already have an axe to grind!
Absolutely correct. Based on what I heard so far, adherents of each political spectrum in US went to their respective corners with their specific talking points. Super annoying as it only adds to the confusion ( its not like we have a systemic risk on our hands ).
And now their bank, which behaved recklessly, failed and they suffer no consequences, the costs of 100% deposit insurance offloaded onto every other sector of the economy.
Because it's unfair to have millionaires bailed out. When the poor make bad decisions they don't get bailed out.
Firstly not clear that this is really a bail-out in the usual sense. No tax-payer money is going to these millionaires, and any costs (if there are any, which isn't entirely clear) are going to go to other banks and their shareholders.
Secondly not clear that depositing money in SVB was a "bad decision" - doing this wasn't a risky thing VCs did to try and get rich.
To be clear, I think it’s a good thing. Just let’s not pretend the government is only ever helping the rich.
Maybe because you are one of the beneficiaries?
https://news.ycombinator.com/newsguidelines.html
Edit: you've been breaking the site guidelines a great deal and we've already warned you a bunch of times. If this keeps up, we're going to have to ban you.
> Any depositor who could read the WSJ or watch the stock ticker could understand that there was no upside in waiting to see what would happen next.
The whole point of regulations is precisely that I don't have to read a journal or scrutinise a stock ticker to watch my money. As it turns out I have more productive and useful ways to spend my time. Maybe he doesn't have anything better to do all day; but pretending that regulation are not needed because there is some way for some people to get some insight about what's going on under the hood is just not a receivable argument.
What are you going on about?
If you listen to the All-in-podcast, where Sacks and the other guys talked about what happen, they actually point out that the problem was improper regulation that allowed banks to get in that state in the first place.
1. Talk of inflation doesn't mention a way more effective tool for tackling it: taxation. Inflation is offhandedly blamed on the government too for not being "transitory". Sacks is actually torn here. Non-zero interest rates hurt the VC model but as a rich guy he certainly doesn't want, say, a corporate windfall profits tax;
2. He claims he wanred about pumping trillions of dollars into the economy. Why 2 years ago and not 14-15 years ago when the zero-interest QE started? What's the difference? Oh, who got the money in 2020? This is part of a consistent narrative from rich people that it's only ever a problem when poor people get government money. Then it's a moral hazard.
3. Further to the "2 years ago" narrative, we should remember that Covid relief started under Trump, not Biden. So why not "3 years ago"? Is Sacks trying to avoid criticizing Trump? Weird. I wonder why.
4. Not one mention of deregulation. Weird.
Inflation is too much money chasing too little stuff. Taxation is less money that the people have, but more money that the government has. If the government just set the money on fire, that would help with inflation, but they won't. They'll spend it. At that point, we will have the exact same amount of money chasing the exact same amount of stuff; the only difference will be who has the money. So we'll have the same amount of inflation, but people (and businesses) will have less money to try to deal with the inflation. That doesn't sound like an answer at all.
So far I have not seen any evidence that the real reason was anything but "poor risk management and communications" A couple of percentage points change in interest rates is not a thing that should bring your bank down. If it does, you have failed, no excuses.
In context, it's even more egregious — Rates after that "couple of percentage points change" are still historically quite low, it's just that we've had a completely aberrant run of near-zero rates for the last decade or so. It was a matter of time until this correction happened, so preparedness was about "when", not "if", it happened.
We were offered to buy insurance for e-banking theft and other types of fraud _and_ insurance for our deposits.
Is it really the case, that Americans assume to have all these sorts of insurances taken care of automatically?
https://www.fdic.gov/about/history/
For consumers, yes. For businesses, this falls under the "treasury management" responsibilities of the CFO position.
If they make this assumption (i.e. by foregoing insurance, T-bill ladders, etc.), they're a poor fiduciary. The VCs and relatively mature startups that stood to lose money in the last week have come out of this looking really bad to the adults in the industry.
It seems mostly a fluff piece with little meat to it.