Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

SVB does not deserve a bailout. They DID NOT hedge interest rate risk at all

twitter.com

Post reply on HN
Print view View original

51–60 of 88 posts

Re: SVB does not deserve a bailout. They DID NOT hedge interest rate risk at all

#51

Post by TheOtherHobbes »

adam_arthur wrote: post #33
water-your-self wrote: post #27

Earlier quoted context omitted.

>If you take a big chunk of credit creation and issuance out of service, the economy is likely to regress fairly significantly. Similarly, ceasing steroid use will reduce muscle mass.

Imagine trying to buy a house without a loan. Or start a business without cash up front. We can move to a world without credit, but standard of living for people will drop significantly. Look at what happened when they tightened lending standards into a recession in the 1930s. The key is to find the right balance in regulations to make the system robust

Imagine a world where people had enough cash to do those things without needing a loan.

No doubt it would be "inflationary" or some other nonsense, but the reality is that banking is a form of deliberate rationing and enforced political hierarchy.

The financial industry exists solely for its own benefit, at spectacular cost to everyone else - not just by making significant capital almost cripplingly expensive for most of the population, but also by acting in irresponsible self-serving ways which everyone else has to pay for.

Re: SVB does not deserve a bailout. They DID NOT hedge interest rate risk at all

#52

Post by nytesky »

hiharryhere wrote: post #15
lovich wrote: post #13

Earlier quoted context omitted.

We already insure 250k in deposits through the FDIC. If you have more than 250k in cash, I don't think its unreasonable to expect that you need to start investing time/money in managing your reserves and not have the rest of society fund the risks you're taking. If companies want to lobby for some sort of tax like unemployment tax on wage labor, to fund a business version of unemployment, it might be a different stor…

250k is not a lot. A 15-20 person company could conceivably spend more than that month, especially with dev salaries, rent etc. How many of those have a treasury function?

They have to “make payroll” but couldn’t they cut all employees down to minimum wage? And then promise a performance bonus when money is restored and they haven’t quit.

Tech workers are usually at will, no union, so I think salary is completely discretionary.

This would be for hours going forward, not the payrolls due for hours already worked.

Re: SVB does not deserve a bailout. They DID NOT hedge interest rate risk at all

#53

Post by youngtaff »

more_corn wrote: post #38
jefftk wrote: post #2

I wish people would distinguish between "SVB does not deserve a bailout" as in "let it fail" vs as in "wipe out the shareholders and bond holders, but, sure, bail out the depositors"

Exactly. SVB has ceased to exist. The bank is not being bailed out. The depositors are. You know, the normal people who’s only error keeping money in a bank.

Except SVB’s customers aren’t “normal people”… they’re VCs, their funds and portfolio companies

Re: SVB does not deserve a bailout. They DID NOT hedge interest rate risk at all

#54

Post by machina_ex_deus »

em500 wrote: post #37
machina_ex_deus wrote: post #14

What's the point in having banks anyway. Why let the people in the bank earn anything if they are risking money that isn't theirs and that the government will pay back anyway if they fail. If banks are rescued from this, the only logical conclusion is that all banks should just cease to exist. Why should they get to play with what is effectively taxpayer's money, since that is where the risk will be paid from if they…

> If banks are rescued from this, the only logical conclusion is that all banks should just cease to exist. Why should they get to play with what is effectively taxpayer's money, since that is where the risk will be paid from if they lose? How it usually works is, when a bank fails and is "rescued", the shareholders (owners) who "get to play" with the money get nothing. The ones who are "rescued" are usually some/mos…

Where do I sign up to play with these levels of leverage of other people's money too?

Where even getting margin called on extremely big margins compared to my initial investment, the government would sweep in because that margin wasn't even mine to play with?

Where I get absolutely ridiculous interest rates from the Fed which I don't need to pass on to my meat shield clients, I just get literally free money from the central bank?

All these privileges for no responsibility. This has to end. If we all admit it's other people's money, and we all admit that in failure, the government will also cover for them, and they get to play these completely absurd investments with leverage of 20 to 1, their privilege is just unjustified.

When the broker fucks up and let you blow your margins, the broker pays the bills. But banks get to blow the margins with everyone's money and somehow the government only comes in when they blew it, but wasn't responsible to keep tabs on their margin in the first place? And there's barely any margins, the leverage ratios are insane.

Of course debt holders would require much higher interests. The whole thing is just a sad scheme where the government is letting privileged entities a monopoly of using leverage on other people money, while the government holds the tail risk.

I would love to get 20 to 1 margin with the government taking all the tail risk to zero and allowing me to dip below zero by design. If I blew it I could start again just like Lehman CFO which moved over to SVB.

If you take their responsibility, you have to take their privileges too.

Re: SVB does not deserve a bailout. They DID NOT hedge interest rate risk at all

#55

Post by mablopoule »

TheOtherHobbes wrote: post #51
adam_arthur wrote: post #33

Earlier quoted context omitted.

Imagine trying to buy a house without a loan. Or start a business without cash up front. We can move to a world without credit, but standard of living for people will drop significantly. Look at what happened when they tightened lending standards into a recession in the 1930s. The key is to find the right balance in regulations to make the system robust

Imagine a world where people had enough cash to do those things without needing a loan. No doubt it would be "inflationary" or some other nonsense, but the reality is that banking is a form of deliberate rationing and enforced political hierarchy. The financial industry exists solely for its own benefit, at spectacular cost to everyone else - not just by making significant capital almost cripplingly expensive for mos…

How is giving financial leverage to people with not enough cash in the bank, but a solid forseeable revenue stream "a form of deliberate rationing and enforced political hierarchy"?

It's like wishing that healthcare system wouldn't exist because you imagine a world where people were just healthy instead.

Re: SVB does not deserve a bailout. They DID NOT hedge interest rate risk at all

#56

Post by machina_ex_deus »

em500 wrote: post #48
kevinventullo wrote: post #40

Earlier quoted context omitted.

But isn’t resetting the shareholders to zero exactly the problem? If we’re keeping score, the shareholders should owe the government exactly how much money was used to make the debt holders whole, right?

We're not keeping negative scores, that's the whole point of the invention of limited liability corporations. It's has large upsides (democratization of capitalism, ability to participate in larger and riskier ventures). Like most powerful tools, it can be abused, but it's such a powerful force multiplier that giving it up is just too costly.

Normally if I have contract with somebody of borrowing money, and I don't pay, the other side lost money. Because it was my responsibility who I do business with. So we both get to play until we reach zero. That's fair game.

Now we're saying, actually, banks effectively don't impose counterparty risk on their clients. So the government is actually who's taking the counterparty risk.

If that's the government and not the customers, why did they get that privilege? Why is the government only there when the risk is fulfilled?

Limited liability is fine. It's not fine when who's really liable is the government, while the original deal was between the bank and its customer. Student loans are also not fine either, since you don't get to set them to zero.

Revoke Banks privilege of handling money. Let them play the game like the rest. Even the government itself needs to raise money using Treasury bonds. I want a fair game. This game is rigged. One player has the privilege of effectively using the government as an insurer for it's counterparty risk. It has repeatedly blown and abused that privilege. Revoke it.

Let me hold my account at the Fed if I have positive balance, just like the rest of the banks. Call it CDBC or whatever. Let me get the Fed interest rates just like banks do. The banks are free to do business as they have always done, to loan money. They are free to deal with the trench of people who need loans. Not with my money. My money is only there because they forced me to. That's not a fair system. I don't approve their usage of it for their margins but I literally don't have a choice. Which is why they also get to give me zero interest rates while the Fed gives them much higher rates.

Re: SVB does not deserve a bailout. They DID NOT hedge interest rate risk at all

#57

Post by erincandescent »

youngtaff wrote: post #53
more_corn wrote: post #38

Earlier quoted context omitted.

Exactly. SVB has ceased to exist. The bank is not being bailed out. The depositors are. You know, the normal people who’s only error keeping money in a bank.

Except SVB’s customers aren’t “normal people”… they’re VCs, their funds and portfolio companies

...portfolio companies which need to make payroll payments to normal people

Re: SVB does not deserve a bailout. They DID NOT hedge interest rate risk at all

#58

Post by machina_ex_deus »

gruez wrote: post #24
machina_ex_deus wrote: post #14

What's the point in having banks anyway. Why let the people in the bank earn anything if they are risking money that isn't theirs and that the government will pay back anyway if they fail. If banks are rescued from this, the only logical conclusion is that all banks should just cease to exist. Why should they get to play with what is effectively taxpayer's money, since that is where the risk will be paid from if they…

> What's the point in having banks anyway. Why let the people in the bank earn anything if they are risking money that isn't theirs and that the government will pay back anyway if they fail. They're not exactly risking nothing. Capital requirements mean that each dollar of deposits need to be backed by more than a dollar worth of assets. The extra assets serves as a cushion in case something goes wrong. That cushion…

I know how it works. They get 10 to one leverage while the government effectively insures their counterparty risk for free.

That's absolutely ridiculous. Where do I sign up. I want to gamble other people money at 10 to one leverage and nobody suing me if I fall.

My cushion if I make a margin account at the bank is what, 2 to 1? Do you know the interest rates you pay for these margins? Compare that to interest rates the banks give their customers.

They are absolutely privileged, by law. You as an individual or even as a corporation don't get this privilege.

Why is it in their interest not to risk it in a ridiculous way? If I had several margin accounts of 10 to 1 that can only go down to zero, the highest return isn't by spending it wisely. It's by spending it in the most risky way, getting that sweet 10x on that risk and the rest can go to zero for all I care. I don't even need a positive expectation value investment to have a positive expectation value from this shenanigan.

Even investing in an unfair coin toss of 40% to double, getting free 10 to one margins my expectation value is an absurd 400% return starting from what should be negative expectation value investment.

The banks have privileges that are absolutely rigging the game in the most distorted ways possible. The shareholders equity doesn't justify their privileges.

Re: SVB does not deserve a bailout. They DID NOT hedge interest rate risk at all

#59

Post by WastingMyTime89 »

machina_ex_deus wrote: post #14

What's the point in having banks anyway. Why let the people in the bank earn anything if they are risking money that isn't theirs and that the government will pay back anyway if they fail. If banks are rescued from this, the only logical conclusion is that all banks should just cease to exist. Why should they get to play with what is effectively taxpayer's money, since that is where the risk will be paid from if they…

You have the right sentiment but the wrong conclusion. It was clear after the large bailouts of 2008 that left to their own demise banks would do anything for a bit more money and were not trustworthy actors. That’s an old conclusion by the way. The same one was reached in the 1930s.

The logical conclusion to these bailouts was that the regulatory environment surrounding banking was plain bad which was unsurprising because successive neoliberal governments had torn down most of it. The conclusion to this one is that it still is and what was done in 2010 (Dodd-Frank) is a joke and clearly insuffisant. Something everyone knew.

You want to be mad at someone? Start with your government.

Post reply on HN