I expect there is a story to be told about SVB's relations with the VC community. Clearly it was providing financial services structured for the startup ecosystem, and there is great value in that. Wanting a relationship with SVB makes sense. But allowing that relationship to prevent you from properly managing your risk is a mistake. It looks like a LOT of VCs made that mistake.
A Bank of One's Own
61–70 of 130 posts
Re: A Bank of One's Own
#62I 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…
> I've commented elsewhere that I'd be pissed at the moral hazard of unsecured depositors getting a federal bailout
This is a very strange take that I disagree strongly with. There is no such moral hazard, and I would not call depositors being made whole any sort of bailout.
I would argue that one of the most important functions of the government, right alongside national security, is maintaining the illusion that bank deposits == money, and that they are callable on demand at par value for any individual or firm in the country.
Re: A Bank of One's Own
#63The 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
If basic customers could be served by a federal deposit system and more "unique" customers might look for private options that cater to their needs (basically all of SVB's customers), nothing that played out in SVB's collapse would have changed.
Re: A Bank of One's Own
#64Earlier 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…
SVB clearly got greedy. They looked at their models and decided that they should use long-term vehicles with higher interest rather than short-term vehicles. The core problem they had was that interest rate risk prices have changed a lot over the last year and a half, largely due to the fed, and they severely underpriced that risk.
Long-term fixed-income investments lose a LOT of value when rates go up and gain a lot when rates go down, and the relationship is nonlinear and kind of hard to model since it's so dependent on people.
Re: A Bank of One's Own
#65The 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.
> You do not want the government, which is supervised by politicians, picking who gets loans.
Yes that's why I said there's some value in having private credit creation. In fact, my comment was just lifted from this lecture by Randall Wray where he says precisely what you just said:
https://youtu.be/gI86w6bSmS0?t=445
Although correction to another comment I made: he does specifically say loans should be held by the issuer until maturity.
Re: A Bank of One's Own
#66Earlier quoted context omitted.
Interest
I’m not an expert in the mechanics but I think there is also a way for private credit creation to run as a separate operation, similar to how loans were originated in the sub prime mortgage crisis and then immediately sold on. I’m not recommending that happen, but a similar system would allow private credit creation without the loan issuers being the primary deposit taking institution. But yes private banks could als…
I can't edit my above comment anymore but going back to the original lecture in which I saw this he does specifically say that loans should be held to maturity by the issuer:
https://youtu.be/gI86w6bSmS0?t=445
Presumably to avoid exactly what happened in the sub-prime mortgage crisis :)
Re: A Bank of One's Own
#67The 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
Yep, precisely, Wray says as much in this lecture:
Re: A Bank of One's Own
#68The 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 depend on depositor's money to generate loans. How would loans be generated, then, if consumers kept their money with the central bank? Issuing debt is a key engine for economic growth. This would incur an extremely contractionary effect.
Re: A Bank of One's Own
#69> I've seen a number of people ask why so many startups banked with SVB, as if this should have been a red flag somehow. The answer is not that tech doesn't want to work with traditional banks, or because they were greedy and looking for better rates. 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.
This is completely bullshit. Unless SVB was subsidizing loans to risky startup employees by lending assets at longer durations, the risks they were taking with those mismatched durations has nothing to do with altruism or philosophy. It’s just greed and lack of foresight to risk the rate hikes.
Re: A Bank of One's Own
#70Earlier quoted context omitted.
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
If basic customers could be served by a federal deposit system and more "unique" customers might look for private options that cater to their needs (basically all of SVB's customers), nothing that played out in SVB's collapse would have changed.
Probably true for SVB, but still useful for the banking system overall.