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Yellen says government will help SVB depositors but rules out bailout

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

#461

Post by tome »

JJMcJ wrote: post #400
belter wrote: post #382

Earlier quoted context omitted.

It's coming from the same system that probably led you to work at Startups your whole career. High risk for high reward on a lightly regulated capitalist system. If your CEO or CFO put all the money in one risky bank, it was bad financial management.

It wasn't risky as long as prime rate stayed super low. But that rate has been creeping up for months now. SVB was too small to qualify for risk assessment under the revised banking rules. So they could get away with money in volatile securities that were very interest rate sensitive. That said, SVB seemed very solid until Thursday morning.

> It wasn't risky as long as prime rate stayed super low.

That sounds a bit like "it's not risky to driver a motor vehicle as long as you don't get into an accident".

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

#462

Post by kgwgk »

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…

the ability to wait till maturity = takes billions in losses

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

#463

Post by jtr1 »

JackFr wrote: post #452
idopmstuff wrote: post #339

Earlier quoted context omitted.

I'm pretty baffled to see so much of this on HN. Like a whole lot of people here, I've worked at startups for my whole career. People here are effectively suggesting that I shouldn't get my paycheck and that the company I work for should lose most of its money because our CEO used a well-reputed bank? Absolutely wipe out the equityholders of SVB. They deserve nothing, because that's what you should end up with if you…

> But kill a bunch of startups because of their choice of financial institution? I just don't get where that comes from. Because you want to take my money, and your justification for wanting my money is simply “My company made a mistake.”

How are they taking your money?

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

#464

Post by shjake »

mcculley wrote: post #454
idopmstuff wrote: post #339

Earlier quoted context omitted.

I'm pretty baffled to see so much of this on HN. Like a whole lot of people here, I've worked at startups for my whole career. People here are effectively suggesting that I shouldn't get my paycheck and that the company I work for should lose most of its money because our CEO used a well-reputed bank? Absolutely wipe out the equityholders of SVB. They deserve nothing, because that's what you should end up with if you…

> kill a bunch of startups I don't see this as a fair statement. There is a difference between killing a startup and letting it die. Zero interest-rate policy allowed for the creation of investors and startups that never had to think about the realities of managing cash. Using FDIC insurance to keep them afloat is acceptable. Anything beyond that is silly.

It seems that SVB had enough assets cover 80-90% of all depositors regardless if they fall under the FDIC limit or not

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

#465

Post by ericb »

bentlegen wrote: post #278
gerad wrote: post #199

Earlier quoted context omitted.

I just don’t understand why folks on the internet are so passionate about the depositors being hit by this. In terms of avoiding moral hazard they are about as far down the list as possible, and bankruptcy law supports that. First stock holders get wiped out (common then preferred), then debt holders (folks who have lent money to SVB won’t get their money back), only then would it hit depositors - and in the case of…

The C-suite paid themselves millions of dollars via bonuses and stock sales right before insolvency. Executives got paid. What’s to stop future bankers from running the same playbook? (We can debate that this the stock sale was premeditated/signaled months in advance, but the stock had already declined 80% from its 2021 peak and they surely knew about the tough liquidity position months ago — external observers drew…

Right, but those people are not getting bailed out. They're losing ownership of their bank!

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

#466

Post by lolinder »

plonk wrote: post #394
yeahsure22 wrote: post #304

Earlier quoted context omitted.

Why do the rules keep changing after the game has been played? And why does it seem to always favor people who are already wealthy beyond imagination? The rules were 250k insured. If you had excess deposits, additional coverage could easily be purchased.

How were these “the rules?” The FDIC’s job is to make the bank’s customers as close to whole as possible. Where would the bank’s assets go otherwise?

No one who knows what they're talking about is objecting to the bank's remaining assets being distributed between depositors. But there's talk of taxpayer money being used to make depositors 100% whole regardless of how many assets remain, and I think that's where the controversy is.

Everyone has always known that $250k is the max that's guaranteed to be given back to you, and the idea of the government paying back more out of taxpayer funds because a lot of VCs gave their startups bad advice rubs people wrong.

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

#467

Post by gerad »

tsimionescu wrote: post #438
gerad wrote: post #199

Earlier quoted context omitted.

I just don’t understand why folks on the internet are so passionate about the depositors being hit by this. In terms of avoiding moral hazard they are about as far down the list as possible, and bankruptcy law supports that. First stock holders get wiped out (common then preferred), then debt holders (folks who have lent money to SVB won’t get their money back), only then would it hit depositors - and in the case of…

> people won’t make payroll, and employees who have no responsibility won’t get paid This gets repeated over and over, but just like depositors have the highest priority to a failed bank's assets, so do employees of any failed company. So, if a company goes bankrupt because it can't access funds stored with a bank, first stockholders would get wiped out, then debt holders, and only then employees (when talking about…

It gets repeated over and over again because if SVB money is locked up for weeks/months while they unwind positions startups won’t be able to make payroll.

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

#468

Post by AmericanOP »

idopmstuff wrote: post #339
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…

I'm pretty baffled to see so much of this on HN. Like a whole lot of people here, I've worked at startups for my whole career. People here are effectively suggesting that I shouldn't get my paycheck and that the company I work for should lose most of its money because our CEO used a well-reputed bank? Absolutely wipe out the equityholders of SVB. They deserve nothing, because that's what you should end up with if you…

Before people get too excited about letting it all burn, I recommend everyone watch this talk by an economist on the 2008 recovery:

https://www.youtube.com/watch?v=RrFSO62p0jk

Spoiler alert (18:30): It was entrepreneurship that turned the economy around. Not fed policy.

SVB put their deposits in US Treasury Bonds. Commonly regarded as the safest investment vehicle there is. Then the fed raised interest rates, completely screwing over this strategy. Then VCs panicked, like sheep.

So now we're in a situation where the most successful startups in the innovation sector are at risk of being wiped out while the US economy is being guided toward recession to cool inflation. Go watch that talk- then tell me you really think its a good idea to let it all burn.

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

#469

Post by roganp »

pcl wrote: post #349
watwut wrote: post #317

Earlier quoted context omitted.

Depositors are protected exactly as any other depositors and there are solutions to the protection ceiling. Like insured cash sweep. That VCs forced the small companies to operate in less safe way and gave them bad advice is 100% fault of these. I do not know why it was so, but this really seems like the case of "we want benefits of minimal regulation and getting better protection then everyone else gets from the gov…

The $250k is the protection floor , not the ceiling. The FDIC guarantees that $250k, but SVB has assets well beyond $250k per account. The FDIC is in the business of protecting depositors. So it will pay out the floor immediately as a matter of course, and then will continue to use the tools it has available and the remaining assets of SVB to pay out more — perhaps 100%, perhaps some amount less — to depositors.

It will be less than %100, because of the unrealized losses on SVB's bond portfolio. Regardless of the amount, there will be delays in returning those funds as FDIC liquidates.

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

#470

Post by tracer17 »

JackFr wrote: post #452
idopmstuff wrote: post #339

Earlier quoted context omitted.

I'm pretty baffled to see so much of this on HN. Like a whole lot of people here, I've worked at startups for my whole career. People here are effectively suggesting that I shouldn't get my paycheck and that the company I work for should lose most of its money because our CEO used a well-reputed bank? Absolutely wipe out the equityholders of SVB. They deserve nothing, because that's what you should end up with if you…

> But kill a bunch of startups because of their choice of financial institution? I just don't get where that comes from. Because you want to take my money, and your justification for wanting my money is simply “My company made a mistake.”

How is it your money? It's not a taxpayer funded bailout, the FDIC is just going to forcibly liquidate SVB's assets and pay back customers to the extent possible with those proceeds.
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