Yellen says government will help SVB depositors but rules out bailout • Hacker News Board

Re: Yellen says government will help SVB depositors but rules out bailout

#281

Post by ianai » Sun, Mar 12, 2023, 3:08 PM UTC

fullshark wrote: post #164

manuelabeledo wrote: post #132

I see a lot of unexpected saltiness and clear misconceptions in any thread about SVB. “Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? “This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank asse…

The reason is because there are countless scenarios in the US economic system, where people/businesses fail cause of no fault of their own, but they are told tough luck that's the free market at work cause these people are simply unconnected or their failure is deemed unimportant. It's why the finanical bailouts left a bitter taste for anyone paying attention, and why gov't action here is immediately scoffed at.

Except this is the opposite of what happened in 2008 with bailing out the banks. Then, the banks got public money to remain solvent. Here, the bank is taking the hit and the government is ensuring the depositors get their funds back. In 08 people were kicked out of their homes and banks were propped up with public funds. Here, the depositors are being made whole and the bank is going out of business. The salt is your typical 0 knowledge hot take.

It’s absolutely in the interest of the greater economy to have a functioning banking system backing high risk/high reward activities like Silicon Valley. And charge the risk appropriately high fees, of course. SV has been a very bright spot in the economy for several decades now - through thick and thin.

If anything, it’s a lesson about how assets should be accounted for in corporate statements. It’s also a statement that the perception of SV is a little sour and could use some reflection. Maybe look for ways to better engage the rest of the community and figure out where resentment stems. (I’d guess calling large swaths of the US “fly over country”, charging high prices, and other consumer feedback involved.)

Re: Yellen says government will help SVB depositors but rules out bailout

#282

Post by tamcap » Sun, Mar 12, 2023, 3:08 PM UTC

drgath wrote: post #233

koolba wrote: post #153

Earlier quoted context omitted.

> Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? Easy, pay out $250K per account, then distribute the rest pro rata based upon closing balance from when the fed's took over. If they have to wait because assets need to be liquidated then sucks to be them. I'm sure they can get their money faster if they agree to a haircut. > “This is a bail…

Have we yet deviated from FDIC rules? I don’t think so, even with what Yellen says. My limited understanding of the situation is that the assets to cover everything is there, they’re just tied up in long-term treasuries. From the FDIC’s site: > As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits. For simplicities sake, let’s just ass…

Magically using billions of federal money to hold assets to maturity is a bailout. If hypothetical JPMorgan is willing to pay for the (ie) bonds $20B, but they "support" $25B of deposits... that $5B is a bailout. Even if in 10 years those bonds would be worth $25B.

Re: Yellen says government will help SVB depositors but rules out bailout

#283

Post by dannyw » Sun, Mar 12, 2023, 3:08 PM UTC

criddell wrote: post #219

sneak wrote: post #183

Earlier quoted context omitted.

I am fairly sure that the FDIC does not want people to need private insurance for bank deposits. This is a big sign your banking system sucks and is expected to fail badly at least some of the time, the avoidance of which is why the FDIC exists. And, yes, opening ten checking accounts is difficult and inconvenient.

Then maybe banks should be required to have private insurance for accounts with balances above $250k? More conservative banks would pay very little for insurance while banks that take on more risk would pay more for insurance.

Who, if not the government with a printing press, can insure nearly all the money in the banking system? Where does it come from?

Re: Yellen says government will help SVB depositors but rules out bailout

#284

Post by ajross » Sun, Mar 12, 2023, 3:09 PM UTC

hindsightbias wrote: post #262

ajross wrote: post #162

Earlier quoted context omitted.

> Generic screeching against the tech world There's some of this, for sure. But there's an equivalent screeching from the tech finance world[1] demanding a full government guarantee. That ain't happening, and I think it's appropriate for the fed to make that clear. FWIW: the dirty secret here is likely that there's a bunch of internal dealing going on as regards SVB. They were The Startup Bank for some reason, it's n…

We need to know who and how much the big fish are exposed. Bailing out the Peter Thiel’s of the world is not something that should be swept under the rug.

Amusingly Thiel himself seems to have been out of SVB. He's being fingered[1] as the "cause" of the bank run and lots of people are asking if he shorted the stock.

[1] Somewhat unfairly. I mean, the guy's an outrageous jerk, but from the evidence at hand it genuinely looks like he recognized the problem with their balance sheet before everyone else, got himself out, and told his companies to do the same. And he was right. That's not fraud, that's good faith financial analysis.

Re: Yellen says government will help SVB depositors but rules out bailout

#285

Post by jliptzin » Sun, Mar 12, 2023, 3:09 PM UTC

koolba wrote: post #153

manuelabeledo wrote: post #132

I see a lot of unexpected saltiness and clear misconceptions in any thread about SVB. “Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? “This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank asse…

> Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? Easy, pay out $250K per account, then distribute the rest pro rata based upon closing balance from when the fed's took over. If they have to wait because assets need to be liquidated then sucks to be them. I'm sure they can get their money faster if they agree to a haircut. > “This is a bail…

It is completely insane to allow innocent depositors to lose their money especially when the government clearly would have no problem coming up with the funds to backstop depositors since this is an isolated incident. This bank being located in a tech hotspot is incidental and I am sure some non-techies are swept up in this as well. Imagine a 70 year old woman who just lost her husband and sold her house to downsize to an apartment. She has $1 million in her SVB account and plans to live off the interest in her retirement. Should this 70 year old widow take a $750k haircut because she hasn’t spent the last few years brushing up on SVB 10-k filings and calling up SVB’s board of directors to ask them how they plan to manage interest rate risk?

FDIC limit should be way higher anyway (when was the last time it was raised?) but if we allow depositors to lose money it will quickly cause a stampede to the handful of huge banks and drive smaller regional banks out of business. That’s why other bank stocks are also plummeting right now. Is that what you want?

If an enormous earthquake strikes one region causing billions of dollars of damage but you live on the other side of the country do you complain about the federal government spending your tax dollars to help those people rebuild?

For the record I believe SVB shareholders and debt holders will get wiped out, as they should.

Re: Yellen says government will help SVB depositors but rules out bailout

#286

Post by koolba » Sun, Mar 12, 2023, 3:09 PM UTC

locallost wrote: post #254

koolba wrote: post #153

Earlier quoted context omitted.

> Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? Easy, pay out $250K per account, then distribute the rest pro rata based upon closing balance from when the fed's took over. If they have to wait because assets need to be liquidated then sucks to be them. I'm sure they can get their money faster if they agree to a haircut. > “This is a bail…

I don't get this comment at all. The post you're replying to literally says the bank has more assets than 250k per client. I read somewhere the insured amount is around $8B whereas the bank's assets are at least 20x that. Where should that money go if every client gets capped at 250k?

They have more than $250K per client but not the full value.

Each account should be allocated MIN(balance, 250K). Then the remaining should be allocated pro rata. So if one is still owed $1000 (ie the balance was $251K before the collapse), then that account’s share of the remainder is: $1000 / (sum of all remaining balances owed)

The haircut per account is only on amounts beyond $250K.

Re: Yellen says government will help SVB depositors but rules out bailout

#287

Post by bluecalm » Sun, Mar 12, 2023, 3:09 PM UTC

I get bailing out depositors. It's not like you have that many options with our current system. You have to keep your liquid assets somewhere, banks are the only option and they are going to do risky business with your assets. Maybe you should be more prudent when choosing your bank but it's not like you can avoid the risk or that depositing with SVB was caused by greed (at least I think not, correct me if I am wrong).

Long term solution is imo obvious as well: decouple deposits and lending business. You should pay for having your money in a bank and being able to conveniently operate it. The bank should not do any businesses with the money (maybe something like buying government T-bills should be permitted) and profit purely from providing services: safety, transfers, payments.

Loan making should be a separate industry. Gather capital, fulfill regulation and do business as it is today but not with deposits but with stakeholders capital.

In such a setup there is little systemic risk: bank goes bust? Shareholders lose the money. No moral hazard of "I will deposit in this risky bank and the government bails me out if things go sour".

Want to keep liquid assets conveniently? Pay for it. Want to invest in a loan making operation? Buy shares in a bank and accept the risk.

The current system forces depositors to accept risks of loan making business just because they need a place to keep liquid assets. It's not like they were asked a question: "hey, do you want us to risk your money or do you prefer to pay for operational costs of your account but we keep the money safe?". If the question was asked then it would be very easy to say no to any kind of bailout.

Re: Yellen says government will help SVB depositors but rules out bailout

#288

Post by nightpool » Sun, Mar 12, 2023, 3:10 PM UTC

lotsofpulp wrote: post #146

manuelabeledo wrote: post #132

I see a lot of unexpected saltiness and clear misconceptions in any thread about SVB. “Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? “This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank asse…

> “Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? I think the common sentiment is depositors should not get any more than whatever the remaining assets are worth. And I think the prominent people asking the government to bailout depositors are worried about only getting 75% of…

Yes, but "worth" is a complicated concept here. What's probably going to happen is that a big bank like JPMorgan is going to buy the remaining assets at 100% book value, and the depositors are going to be made whole out of that. That's not their current market value if sold at fire-sale prices, but banks have the time horizons to hold those assets to maturity and not worry so much about their market value. The stability of the US banking infrastructure is worth more to JPMorgan then haggling over a few billion dollars of lower rates bonds

Re: Yellen says government will help SVB depositors but rules out bailout

#289

Post by nerdponx » Sun, Mar 12, 2023, 3:10 PM UTC

lotsofpulp wrote: post #146

manuelabeledo wrote: post #132

I see a lot of unexpected saltiness and clear misconceptions in any thread about SVB. “Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? “This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank asse…

> “Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? I think the common sentiment is depositors should not get any more than whatever the remaining assets are worth. And I think the prominent people asking the government to bailout depositors are worried about only getting 75% of…

But why? What purpose does that serve? It's hardly even inflationary, the value was basically destroyed, so the Fed conjuring replacement money doesn't seem like such a bad thing. Shareholders will still be taking a major loss, and they are the ones who ought to be held responsible, so it makes sense. You can't fault depositors for not doing thorough diligence on a 40-year-old bank with a good reputation and it doesn't make sense to punish their employees for it, especially in a cooling job market with uncomfortably high inflation.

Re: Yellen says government will help SVB depositors but rules out bailout

#290

Post by remote_phone » Sun, Mar 12, 2023, 3:10 PM UTC

bob1029 wrote: post #185

gitfan86 wrote: post #89

Earlier quoted context omitted.

Exactly, none of them are pointing out what percentage of the money that is currently tied up was going to be sent out as payroll for people making under 100k/year over the next 30 days. If the Fed came out and said "We have reviewed all the depositors and their situations and we are funding 100% of payroll and basic operating costs needs for the next 90 days" The VCs would immediately come up with another reason why…

> The VCs would immediately come up with another reason why ALL depositors need to be made whole immediately. What do we think the end-goal of these VCs is? Hypothetically, why would someone want to see a run on SVB? How could you benefit from all of this?

Their goal isn’t to see a run on SVB. But to save their investments they all told their startups to pull their money which cause svb to collapse. Now they want the rest of their money safe which is why they want a bailout.