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The collapse of SVB exposes the largest crack in the economy

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Re: The collapse of SVB exposes the largest crack in the economy

#151

Post by tialaramex »

Jensson wrote: post #101
PKop wrote: post #19

Earlier quoted context omitted.

Literally funds the government lol

But why would you need a private corporation to put peoples money in T-Bonds? Why not just make the government do that directly? I don't see how these corporate profits benefited society. They didn't fill some hard to do function, they just risked others money and planned to skim the gains for profit, why should society encourage that? And they didn't even risk the money in growth areas, they just gave it to the gove…

The UK government owns several banks, one of these banks is for exactly this purpose.

National Savings & Investment Bank (NS&I) does not offer loans, but money you save with this bank is in practice just part of the country's general fund, they're paying you interest on your savings because if they borrowed that money commercially they'd have to pay interest too.

This has one obvious big advantage for the saver - it's inherently safe, you aren't saving with a bank, who might gamble your money away and then go bankrupt, if the whole country fails then it doesn't mean anything to lose the Pounds in the savings account, Pounds are now worthless anyway. Also if you live there you have more immediate problems.

Since the government owns it, it's also allowed to do things which would otherwise be illegal, at least potentially e.g. NS&I Premium Bonds are basically savings except with gambling, or scratch-offs except you get your money back if you don't win. Your deposit is safe, but instead of say 1% interest on £10 000 you might have 0.1% chance to win another £90 000 for a total of £100 000.

This is technically worse than the 1% interest but it's exciting and people buy lottery tickets so who am I to argue?

Edited to add: Somehow the word not was missed in my second paragraph during editing. Fixed now.

Re: The collapse of SVB exposes the largest crack in the economy

#152

Post by dragontamer »

celestialcheese wrote: post #135
JohnFen wrote: post #61

Earlier quoted context omitted.

They won't lose deposits except insofar as they decided it was OK to exceed the 250k limit for FDIC insurance. And in deciding to do that, they were deciding to take a risk and got burned by it -- but it was a risk they willingly took on.

Asking honestly - if you just got $100m wired to your account from a Series C, what's the right way to protect your cash?

There's a couple of services that will split up your deposit into 20-different banks, so that you achieve $5 Million FDIC insurance rather than just $250,000.

Also, if any particular bank fails, you only risk 1/20th of your cash.

EDIT: I never managed $100M before however. Maybe that stops being a potential plan at these sizes.

Re: The collapse of SVB exposes the largest crack in the economy

#153

Post by mullingitover »

astrange wrote: post #114
bequanna wrote: post #54

Earlier quoted context omitted.

Please name one “banking innovation” the banking industry has implemented in the last decade which has benefitted consumers.

Same-day ACH, aka why you now get paid two days earlier than you used to. Check deposits by smartphone camera. Most of the stuff on https://www.bitsaboutmoney.com .

Are these really innovations, or just convoluted workarounds for problems that other countries have actually solved? I don't think anyone under 40 in Europe has ever written a check, for example, because wires are far more convenient there.

Re: The collapse of SVB exposes the largest crack in the economy

#154

Post by PKop »

In the short term, it is interesting to see if this problem grows[0]...if Fed keeps rates at high levels for longer, there is going to be a gravitational pull into treasuries which will cause more banks to fail.

It would be very prudent to not have more than the FDIC insured amount in especially smaller regional banks that may have made same errors as SIVB while avoiding Basel III regulations [1]

[0] https://twitter.com/TOzgokmen/status/1634329176554520576

[1] https://archive.ph/Fx1is

Re: The collapse of SVB exposes the largest crack in the economy

#155

Post by gumby »

Jensson wrote: post #13
TooSmugToFail wrote: post #2

SVB used an exemption from Basel III, which allowed it to run a riskier business, and eventually led to its implosion. Basel III was introduced to force banks to be more conservative, and thus more safe. Downside: this also means bank is going to be less profitable. European banks were forced to implement Basel III, while the US bankers managed to lobby a loophole for certain types of banks. And sure enough, SVB leve…

> Downside: this also means bank is going to be less profitable. What are the downsides to society if banks are less profitable? They invested in T-Bills, I don't see how that investment served society in any way.

> What are the downsides to society if banks are less profitable?

Because they touch money they have all sorts of woo-woo respect. Really they are just service providers like lawyers, gardeners, and doctors.

The whole public perception of the finance sector (and its own sel-regard) is backwards.

Re: The collapse of SVB exposes the largest crack in the economy

#156

Post by chasd00 »

MrMan wrote: post #78
xwdv wrote: post #11

Earlier quoted context omitted.

The exemption should still be allowed, as it led to great banking innovations for startups. The exemptees just need to be fucking careful with this advanced mode of operation.

nonsense - what banking innovations do startups need? is there really any such thing as a startup? or are we just talking about small businesses some of which grow into larger still unprofitable businesses? hopefully this mythologizing stops

I was wondering the same. You put money in a bank so no one robs you and steals it. Money goes in and money comes out when you need it. What innovation is there?

Re: The collapse of SVB exposes the largest crack in the economy

#157

Post by nostromo »

majewsky wrote: post #120
nostromo wrote: post #63

Earlier quoted context omitted.

Inflation would like a word.

Speaking from my German perspective. Our (European) central bank printed central bank money like crazy the last 10 years, and apparently it was not a problem. Prices only shot up once there were supply shocks due to Covid and Putin. And sure enough, the supply shocks are slowly waning, and hence YoY inflation rates are also rapidly declining. Yet everyone keeps talking about how the money supply is causing inflation,…

It's not accurate to say the EU has been printing money like crazy for 10 years, when for most of that time, the money printing was minor compared to 2020-2022.

Europe, much like the US, was printing money, at a fairly steady rate from 2008 to 2020, at which point they doubled the money supply in a little over a year. That is, they printed more money in ~18 months then they had since the EU was formed.

https://fred.stlouisfed.org/series/ECBASSETSW

Re: The collapse of SVB exposes the largest crack in the economy

#158

Post by actionablefiber »

bjornsing wrote: post #128
actionablefiber wrote: post #85

Earlier quoted context omitted.

They took deposits from depositors who would blow up if interest rates went up, and then used those deposits to buy assets that would blow up if interest rates went up. Interest rates went up, so their assets crashed at the same time that deposits plummeted and withdrawals skyrocketed. If you want to standardly hedge against interest rate risk, that's what swaps are for. If you want to take on a comparatively less ra…

> They yield less, but surely that's better than "the FDIC seizes your bank and your equity goes to zero." For the individual banker, perhaps it's not? If rates stay low they get a fat bonus, if they go up they just get a new job somewhere else.

Depends on the equity/cash split of your compensation. A failed bank is worth zero. Cash is cash.

Re: The collapse of SVB exposes the largest crack in the economy

#159

Post by orwin »

astrange wrote: post #147
talideon wrote: post #129

Earlier quoted context omitted.

OK, how about mentioning something that isn't typical in the EU while still adhering to Basel III. Plenty of time here... Meanwhile, how close is the US to making Chip-and-PIN a thing? And who still uses cheques these days?!

We have chip-and-nothing, or contactless, which is better than Chip-and-PIN. (Note Apple Pay and similar are basically chip-and-PIN because it's authenticated by the phone passcode.) > And who still uses cheques these days?! US uses them for business-to-customer payments, especially unsolicited ones, because we don't want to give random businesses we don't know our bank account numbers.

You can't get your refund directly on your credit card? It's standard for at least clothes and tools/furniture in my country.

Re: The collapse of SVB exposes the largest crack in the economy

#160

Post by jacobolus »

cplusplusfellow wrote: post #41
fshbbdssbbgdd wrote: post #8

Earlier quoted context omitted.

The subtext here is David Sacks and his friends are investors in Silicon Valley companies. Lots of Silicon Valley companies are depositors of SVB and could lose money if there is a haircut on assets over $250k, or at least will lose temporary access to their cash. David Sacks wants SVB to be bailed out by a major bank so those deposits are made good. He’s talking about a wider economic impact because that’s an argume…

I don’t understand the disgust I’m reading for VCs and startups. Bailing out the bank doesn’t mean we let the bank CEO get richer off this transaction (like we did in 2008). It means the startup companies making payroll are going to survive and continue building the future of technology and healthcare. What am I missing?

I don’t think people are disgusted at “startups” in general, but David Sacks deserves any scorn that comes his way after his shameless and pathetic Musk sycophancy through the whole Twitter deal.

This guy who has spent years (decades?) constantly whining about how government regulations are excessive and federal agency should be curtailed and government should stop protecting various groups from harm etc. is now suddenly crying out for urgent government help once something is hurting him and his friend circle personally.

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