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SVB collapse could mean a $500B venture capital ‘haircut’

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Re: SVB collapse could mean a $500B venture capital ‘haircut’

#111

Post by phoehne »

bagacrap wrote: post #58
cwilkes wrote: post #48

Earlier quoted context omitted.

The moral hazard is that there isn’t a a limit to the $250k FDIC insurance so people that put money into the bank don’t have to care what the bank does. So there’s no incentive to work with a bank that took the time and money to pass a stress test — in fact the one that didn’t bother to do any testing can give better terms as they aren’t spending money to be safe.

What's an individual supposed to do, pay for an audit of a bank's balance sheet? The bank had poor risk management, regulators were asleep at the wheel, depositors are blameless. Although I will say that a startup with millions in the bank should probably have a CFO.

If you bank with publicly traded banks, they publish their financial statements and those statements are audited. They are freely available for you to read and contain a lot of good information. You could watch, for example, SVBs interest expense grow unsustainably, quarter after quarter. That's what the shorts picked up on and why some investors built up a short position on SVB.

That being said, two people running an Etsy store won't do that. Nor should they have to. Maybe the insurance should be bumped up, but for either a very limited time, until you write new, official rules. And yes, the CFO should do an appropriate level of due diligence for a large business with lots of money. It makes you wonder what some of the CFOs did all day.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#112

Post by mindslight »

deltree7 wrote: post #26
bbbbzzz1 wrote: post #13

Earlier quoted context omitted.

More tame inflation for people who maintain their good paying jobs will be in an even better position

Deflation is always worse than inflation. 1930s is always worse than 1980s.

Like how deflation totally wrecked the PC industry because nobody ever buys computers, knowing that tomorrow's model will be more capable and less expensive? Or how if we knew grocery prices were going to be lower in a year, most people would forgo buying food and starve?

The prices of things naturally want to go down - this is exactly what market optimization aims to do. The Fed has been creating ever more new money to erase the gains of economic and technological progress. If this new money were being spent by congress on tangible projects, then at least we'd have something to show for it. But instead it has all been wastefully dumped into creating an asset bubble that's just a huge handout to the rich. If you want to know the cause of ever growing rich-poor divide, look no further.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#113

Post by KirillPanov »

mmmmmbop wrote: post #93
toast0 wrote: post #75

Earlier quoted context omitted.

Domestic dumping may be prohibited as predatory pricing under anti-trust, depending on the circumstances, including the pricer needing to have market power.

Right, but there is zero differentiation there between physical and virtual products. GP implied that there is some sort of protection against price dumping of physical products that doesn't exist for virtual products.

The differentiation is in your choice of terminology. "Virtual" products have zero marginal cost, and the statute mentions marginal cost. The statute doesn't have to mention "virtual" products because it mentions marginal cost.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#114

Post by lxgr »

landemva wrote: post #102
nostromo wrote: post #95

Earlier quoted context omitted.

Because we printed trillions of dollars and haven’t come close to removing all that excess stimulus yet - nor have any supply side constraints that existed prior to Covid been removed.

I thought the corona payments ended. Computer chips and PCs are largely back in stock. Fertilizer and fuel prices went higher in past year. This drove up food production prices. Molecule flow in pipeline to Germany was sabotaged, preventing sale of molecules from east to west which drove up natural gas prices at export ports in USA. Not a virus issue but a war issue.

> Computer chips and PCs are largely back in stock.

Not sure if car manufacturers, the Raspberry Pi foundation, and many others would agree with that assessment. Energy prices in Europe have started coming down again as well.

And Corona payments may have ended, but the money is still sloshing around in the system.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#115

Post by phoehne »

wbl wrote: post #63
mitthrowaway2 wrote: post #28

Earlier quoted context omitted.

> BTW you can blame the Fed for low interest rates, but it's the yield curve inversion and long rates which caused the liquidity/solvency problem not the short term rate hikes Can't we sort of blame the Fed for that [yield curve inversion and long rates] too? It undertook massive quantitative easing during the pandemic, which depressed the yield of long-term bonds such as those bought by SVB. Perhaps if it hadn't don…

Please explain to me what you think rates would have needed to do given that there was a massive decrease in economic activity due to a pandemic followed by inflation.

I think the real damage was done between 2008 and 2018, when we spent 10+ years under zero interest rates in the US and negative rates in parts of Europe. I think that conditioned people to forget about things like duration risk and interest rate risk. Had we been under a "normal" rate regime during that period, I don't think people would have thought 10 year t-bonds paying 1.5% were in any sense of the word a "good deal." I think peoples' expectations were so messed up that Austria (?) issued a 97 year zero coupon, zero interest rate bond. Like it was a good thing.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#116

Post by joe_the_user »

tripletao wrote: post #99
joe_the_user wrote: post #57

Earlier quoted context omitted.

...really this was a bank run pure and simple I've been around and around on this question. Insolvent or illiquid, illiquid or Insolvent... etc. It was solvent on paper, by what it had to record on it's books. But it was insolvent by mark-to-market (which it didn't have to use but which the sophisticated but not-that-sophisticated investors, say venture capitalists, would assume is the reality). But hey, you could sa…

> which it didn't have to use but which the sophisticated but not-that-sophisticated investors, say venture capitalists, would assume is the reality It seems like you're implying that a truly sophisticated investor would view this differently, but I don't see how. By all indications, the MTM price was economically correct--bid/ask spreads and trading volumes were normal, and the price was very close to what a simple…

I suppose I shouldn't necessarily imply "truly sophisticated" but one group of depositors would just say "of course the Fed will support the depositors, there's no reason to worry" your argument about insolvency is correct.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#117

Post by lxgr »

eunos wrote: post #47
lr4444lr wrote: post #22

Pardon my ignorance, but why would VC backed companies not have CFOs and general VC advice against putting all or even a majority of their funds in a single bank? Why would they not split it among several mid to large sized banks? [Edited for typo]

From a reddit AMA (dont have the link sorry), IIRC small startups dont have enough manpower to hedge their finance and more or less discouraged to hire finance teams (just focus on your product!).

There are treasury products available that do it for you, both by distributing deposits across multiple FDIC-insured banks or by buying short-term treasuries.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#118

Post by yibg »

xboxnolifes wrote: post #82
arcticbull wrote: post #45

Earlier quoted context omitted.

> nor the moral hazard created by the bailout There was no moral hazard created because bank shareholder equity got zeroed out. Bank management and shareholders were not protected against the 'find out' phase.

People keep saying this, but I don't understand why they don't see the issue. Yes, shareholders got zeroed out of their SVB shares. But since there was no risk to playing with depositors money besides losing the business, which can fail in any number of other ways as well, there is no deterrent to taking on the large risk. The optimal strategy to beat the competition is to edge toward more risk. And since you can get…

What was stopping this behaving before or if there was no depositor guarantee? Either way there was no downsides to them.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#119

Post by doktorhladnjak »

arcticbull wrote: post #45
kurthr wrote: post #8

Play bank run games, win bank run prizes. Really, I don't love the regulatory arbitrage played by SVB and unhedged duration risk, nor the moral hazard created by the bailout, nor the somewhat bizarre attitude of companies holding huge $100Ms of uninsured deposits earning minimal interest (why have more than 1 months cash flow?), but really this was a bank run pure and simple. When you have to plan to lose >20% of you…

> nor the moral hazard created by the bailout There was no moral hazard created because bank shareholder equity got zeroed out. Bank management and shareholders were not protected against the 'find out' phase.

There is absolutely moral hazard for depositors. If uninsured SVB depositors had gotten something like 90¢ on the dollar for deposits, every company with uninsured deposits would start thinking about how reliable their bank might be. More due diligence would happen.

Of course, we also would have seen runs on many more regional banks. The "too big to fail" banks like JP Morgan and BofA would only have gotten much larger.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#120

Post by SilasX »

deltree7 wrote: post #12
gigatexal wrote: post #6

Good. All those 0% interest leveraged VC funds can go burn in a fire. They pumped stupid money into companies and inflated valuations. Now that things are getting saner with real interest rates above 0 and getting higher sanity will reign again in the markets.

It's delusional to think that this won't have effects on most HNers employment/salary. So be careful what you wish for

“A socially destructive practice benefits you, so you shouldn’t wish for it to stop.”

Wrong. You should, and I always bite that bullet.

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