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A Bank of One's Own

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Re: A Bank of One's Own

#51

Post by hahaxdxd123 »

phendrenad2 wrote: post #47

> They banked with SVB because it's one of only a handful of banks that was willing to align its financial products with the holistic levels of risk that are required to work in startups. I don't really understand what this means. What specifically did SVB offer that, say, Chase or BoA didn't?

> My only other option, I learned, was to work with an employee equity "fund" – essentially, loan sharks – that lend money to startup employees if they don't have the cash to buy their options. In exchange, they would take more than 50% of my payout, if it ever came to pass. After weighing these options, I decided to choke down my fears, cash out my savings and buy myself one big chip, which I placed in front of the roulette wheel and held my breath as it spun.

> When a founder goes to the bank to get a mortgage, it's difficult to explain to someone at, say, Bank of America that yes, their savings and income don't look very impressive, but they do have a lot of equity in a promising company – which, by the way, isn't yet profitable, but it will be! (Maybe.) A Big Banker doesn't look at that story and see a potential high earner. They just see someone who is incredibly cash poor and risky.

> "Boo hoo," you might think. "Pity the poor venture capitalist who can't afford to buy into their fund." But this person did not come from a wealthy or privileged background. They were relatively young. They didn't have family who could advance them the cash.

They offer loans and financial products to employees, founders, and VCs (new to me), that are cash poor but have equity in presumably valuable companies. A relationship that is supposedly hard to forge with other banks.

Re: A Bank of One's Own

#52

Post by hn_throwaway_99 »

erik_seaberg wrote: post #22
hn_throwaway_99 wrote: post #5

I thought this was a great post. I've commented elsewhere that I'd be pissed at the moral hazard of unsecured depositors getting a federal bailout (though not if the feds just assist in finding a buyer or do as much as possible to ensure depositors can access their funds quickly), but at the same time I'm saddened by so much of the gleeful tribalism I see online (but not too saddened - many of the "dancing on your gr…

The moral hazard of trusting a licensed bank? Do we want depositors to be hesitant to do that? The Fed won’t even allow “narrow banks” (that keep a 100% reserve ratio and cannot fail) because they think it’s crucial for our deposits to be available for loans and bonds.

> The moral hazard of trusting a licensed bank?

With deposits in excess of FDIC limits? Yes, absolutely. There are a number of options to manage cash more securely than just putting it all in a single bank.

Either one of 2 things must be true:

1. The FDIC 250k limit is real, and so deposits in excess of that limit must be subject to the risk of failure.

2. The FDIC 250k limit is fiction. If that's the case, then we should be honest and acknowledge that, and price any additional insurance accordingly.

Everyone clamoring for a bailout now wants to have their cake and eat it, too. They want the luxury of pretending like their deposits are insured without paying the premiums.

Re: A Bank of One's Own

#53

Post by polygamous_bat »

nemo44x wrote: post #50
erik_seaberg wrote: post #10

It worries me that people assume SVB must have taken crazy risks on startups or crypto, when the actual mistakes were locking up so much money in long-term mortgage and Treasury bonds, and having clients who talk to each other.

It’s such a strange thing. Gov stims everything and the fed drops rates to nothing and it works. Cash flows are coming in. But there’s just so much cash and not enough borrowers so they buy one of the safest assets. The very same entities that created all the cash and low interest rates start rapidly changing the interest rates and then this happens. Like I don’t want to defend the execs too much as they are the resp…

> Like I don’t want to defend the execs too much as they are the responsible people. But the gov and Fed did this. Erratic economic policy did this. It’s sad so many people think it’s a greedy bank. Being named Silicon Valley Bank doesn’t help.

Classic libertarian chant assigning the success to the private individual and blame to the government. Everyone is dealing with the same macroeconomic environment. SVB execs don't get a pass for poor risk management and not understanding their customer base.

Re: A Bank of One's Own

#54

Post by SkyMarshal »

xboxnolifes wrote: post #43
gruez wrote: post #39

Earlier quoted context omitted.

>There is probably some value in having banks to do loan underwriting and allowing private credit creation but why would you ever put your money in a commercial bank when you can deposit at the federal reserve with 0 risk?

Interest

Presumably you would get at least T-bill equivalent interest rates in a postal saving system, but that still leaves room for higher interest alternatives.

Re: A Bank of One's Own

#55

Post by SkyMarshal »

dools wrote: post #27

The obvious fact is that we don’t need private banks to run our payment system or provide deposit accounts. It can be done perfectly well by allowing individuals to have accounts at the central bank through a postal savings system. There is probably some value in having banks to do loan underwriting and allowing private credit creation but this whole thing if allowing private banks to run everything and then providin…

I agree. It’s not even clear that banks need customer deposits to create credit and loans anyway [1]. Just let them continue with their commercial credit/loan operations, and provide a postal savings system for zero-risk savings for the public. Seems like a much less calamity-prone system.

[1]:https://www.youtube.com/watch?v=3N7oD5zrBnc

Re: A Bank of One's Own

#56

Post by fludlight »

dools wrote: post #27

The obvious fact is that we don’t need private banks to run our payment system or provide deposit accounts. It can be done perfectly well by allowing individuals to have accounts at the central bank through a postal savings system. There is probably some value in having banks to do loan underwriting and allowing private credit creation but this whole thing if allowing private banks to run everything and then providin…

Banks use some of those deposits to make loans to private parties. This is, on the whole, beneficial to society so we want it to continue.

You do not want the government, which is supervised by politicians, picking who gets loans.

Re: A Bank of One's Own

#57

Post by nemo44x »

polygamous_bat wrote: post #53
nemo44x wrote: post #50

Earlier quoted context omitted.

It’s such a strange thing. Gov stims everything and the fed drops rates to nothing and it works. Cash flows are coming in. But there’s just so much cash and not enough borrowers so they buy one of the safest assets. The very same entities that created all the cash and low interest rates start rapidly changing the interest rates and then this happens. Like I don’t want to defend the execs too much as they are the resp…

> Like I don’t want to defend the execs too much as they are the responsible people. But the gov and Fed did this. Erratic economic policy did this. It’s sad so many people think it’s a greedy bank. Being named Silicon Valley Bank doesn’t help. Classic libertarian chant assigning the success to the private individual and blame to the government. Everyone is dealing with the same macroeconomic environment. SVB execs d…

Of course they should be fired and not hired as executive leaders ever again. But the gov and the fed’s erratic policy and failure to change course early enough leading to the level of inflation we have and whipsaw interest rates need to shoulder some too.

Something like 50% of mortgages were written between 2020 and 2022. So many of these are about to be underwater due to the whipsaw.

There’s going to be a lot of failures in the coming months.

Re: A Bank of One's Own

#58

Post by swalling »

fludlight wrote: post #56
dools wrote: post #27

The obvious fact is that we don’t need private banks to run our payment system or provide deposit accounts. It can be done perfectly well by allowing individuals to have accounts at the central bank through a postal savings system. There is probably some value in having banks to do loan underwriting and allowing private credit creation but this whole thing if allowing private banks to run everything and then providin…

Banks use some of those deposits to make loans to private parties. This is, on the whole, beneficial to society so we want it to continue. You do not want the government, which is supervised by politicians, picking who gets loans.

Except if you look at mortgages as an example, the government already has a huge impact on who gets loans (via Fannie Mae and Freddie Mac, plus programs like USDA home loans). That influence is largely to expand access to people who would otherwise get cut out of the system.

Re: A Bank of One's Own

#59

Post by hakfoo »

hn_throwaway_99 wrote: post #52
erik_seaberg wrote: post #22

Earlier quoted context omitted.

The moral hazard of trusting a licensed bank? Do we want depositors to be hesitant to do that? The Fed won’t even allow “narrow banks” (that keep a 100% reserve ratio and cannot fail) because they think it’s crucial for our deposits to be available for loans and bonds.

> The moral hazard of trusting a licensed bank? With deposits in excess of FDIC limits? Yes, absolutely. There are a number of options to manage cash more securely than just putting it all in a single bank. Either one of 2 things must be true: 1. The FDIC 250k limit is real, and so deposits in excess of that limit must be subject to the risk of failure. 2. The FDIC 250k limit is fiction. If that's the case, then we s…

There's option 3: The limit is in practice "At least 250k" and the value of "At least" varies depending on the nature of the deposit, the institution it's in, and its failure mode.

There are no doubt certain banks that would be more palatable politically to backstop further. I could imagine a national bank with mostly retail depositors and few over-250k accounts is "prettier" politically than if you had a tightly focused regional player that had mostly corporate accounts. I could see politicians saying "Why should Iowa bail out the bad decisions of Bay Area investors? Nobody in Dubuque actually has an account there."

Re: A Bank of One's Own

#60

Post by no_wizard »

fludlight wrote: post #56
dools wrote: post #27

The obvious fact is that we don’t need private banks to run our payment system or provide deposit accounts. It can be done perfectly well by allowing individuals to have accounts at the central bank through a postal savings system. There is probably some value in having banks to do loan underwriting and allowing private credit creation but this whole thing if allowing private banks to run everything and then providin…

Banks use some of those deposits to make loans to private parties. This is, on the whole, beneficial to society so we want it to continue. You do not want the government, which is supervised by politicians, picking who gets loans.

I agree that having a banking system in any major degree at the whims of politicians could and likely is a bad idea.

I don’t think however having the Civil Service running a public bank would be a bad thing though. Career government employees are at the whims of politicians no more than private businesses are, has been my observation, and can when structurally enabled make good sound decisions.

I think having a public option for banking in this light would be positive

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