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

How deep is the rot in America’s banking industry?

finance.yahoo.com

Post reply on HN
Print view View original

181–190 of 325 posts

Re: How deep is the rot in America’s banking industry?

#181

Post by DubiousPusher »

afarrell wrote: post #134
DubiousPusher wrote: post #131

Earlier quoted context omitted.

> A bank made bad risk management decisions and got zeroed out; all the right incentives not to do that again are there. This kind of assumes that the risk matrix of an executive is singularly indexed on the long term viability of their institution. But the short term gain of bad behavior is still in full effect. Bonuses for the years up to this crisis have already been paid and were probably inflated based on the ba…

Alternately, it assumes that the risk matrix of an executive also includes: 1. Their reputation. How much less likely is it that a board of directors would think twice before hiring them to be a steward of shareholders' assets? 2. Their egos. How much less likely is it that people will be willing to invest time delivering projects whose value can be wiped out by poor risk management in the same way that SVBs has?

I probably shouldn't have used the word singularly. I think reputation and shame matter to these people to some extent. But as I indicated in my comment, I think this outcome dampens the consequences for those incentives as well.

Re: How deep is the rot in America’s banking industry?

#182

Post by Analemma_ »

tensor wrote: post #178
tptacek wrote: post #18

People seem to have a really hard time with the idea that, in the SVB debacle, the system worked effectively and pretty much the way it was planned to. It's not even clear what people are upset about. There's an article on the front page of The Atlantic today about how angry we should be about SVB, and if you read it, it's hard to figure out who those angry people should be. Equity is getting zeroed out. Management w…

It's really pretty easy to understand. Imagine if some tech company went from fine to bankrupt overnight in a surprise to everyone. All the shareholders zeroed, not just management but public shareholders, employees, etc. Would you seriously be surprised that all those people who lost their shares would be upset? Hell, even with just layoffs the outrage on this site has been deafening. I can see shareholders and empl…

> I can see shareholders and employees of SVB rightly being pissed off. It's not your place to tell them they should not be.

I mean... yes it is. I'm against zeroing depositors of failed banks, because (for better or worse) we've decided that banks should work like restaraunts and you shouldn't have to do a complicated risk assessment about how safe one is before deciding to do business there. But shareholders are a different story. If you invest in a company and they do dumb things and lose your money, that's at least somewhat on you - you're supposed to know what the company is doing before you invest, and potentially push for management changes if they're doing stupid things. Insulating shareholders from the bad decisions of their companies is an utterly unacceptable degree of moral hazard.

Re: How deep is the rot in America’s banking industry?

#183

Post by rayiner »

tptacek wrote: post #18

People seem to have a really hard time with the idea that, in the SVB debacle, the system worked effectively and pretty much the way it was planned to. It's not even clear what people are upset about. There's an article on the front page of The Atlantic today about how angry we should be about SVB, and if you read it, it's hard to figure out who those angry people should be. Equity is getting zeroed out. Management w…

It’s also not clear to me what the material impact of this was on “Main Street” that would cause people to be worked up looking for someone to blame.

Re: How deep is the rot in America’s banking industry?

#184

Post by tensor »

Analemma_ wrote: post #182
tensor wrote: post #178

Earlier quoted context omitted.

It's really pretty easy to understand. Imagine if some tech company went from fine to bankrupt overnight in a surprise to everyone. All the shareholders zeroed, not just management but public shareholders, employees, etc. Would you seriously be surprised that all those people who lost their shares would be upset? Hell, even with just layoffs the outrage on this site has been deafening. I can see shareholders and empl…

> I can see shareholders and employees of SVB rightly being pissed off. It's not your place to tell them they should not be. I mean... yes it is. I'm against zeroing depositors of failed banks, because (for better or worse) we've decided that banks should work like restaraunts and you shouldn't have to do a complicated risk assessment about how safe one is before deciding to do business there. But shareholders are a…

Where did I say they should be insulated? I said they are pissed off since you seem confused as to why. Imagine telling a laid off employee: you work for a tech company you're supposed to know what the company is doing before you join. If you get laid off that's how it's supposed to work! I don't understand why you are so upset?

Does that resonate with you? Or do you still have no sympathy for all those people?

Re: How deep is the rot in America’s banking industry?

#185

Post by TMWNN »

checkcircuits wrote: post #100
tptacek wrote: post #18

People seem to have a really hard time with the idea that, in the SVB debacle, the system worked effectively and pretty much the way it was planned to. It's not even clear what people are upset about. There's an article on the front page of The Atlantic today about how angry we should be about SVB, and if you read it, it's hard to figure out who those angry people should be. Equity is getting zeroed out. Management w…

I dont know if I agree with your assessment. > Equity is getting zeroed out. Management was fired. Depositors were made whole almost immediately. SVB's assets are apparently not impaired; SVB would have held them to maturity had the bank run not happened, and now somebody else will instead. Part of the problem is that the system that enabled them to end up in this situation is the erosion of Dodd-Frank. The systemic…

> Part of the problem is that the system that enabled them to end up in this situation is the erosion of Dodd-Frank.

My understanding is that SVB would have met the Tier 1 capital requirements even without the 2018 revisions to Dodd-Frank, for the reason digitaltrees said: The bonds it purchased are considered highly liquid and safe.

Re: How deep is the rot in America’s banking industry?

#186

Post by TMWNN »

tptacek wrote: post #66
kasey_junk wrote: post #48

Earlier quoted context omitted.

Covering uninsured deposits is common as they retain their senior debt status. Guaranteeing them on the other hand is very new. And if we are going to expect them to be guaranteed in the future insurance rates must go up, not just to cover more things but to cover the riskier behavior it creates. If we aren’t going to cover them 100% in the future then apparently it’s true that there are not just different classes of…

Or just different circumstances? IndyMac famously paid uninsured depositors back 85 cents on the dollar, right? But IndyMac was also plowing depositor dollars into a portfolio of Alt-A MBS's.

> Or just different circumstances? IndyMac famously paid uninsured depositors back 85 cents on the dollar, right?

About 50 cents on the dollar.

The typical depositor in post-2008 bank failures (all tiny, until SVB and Signature) got about 75 cents on the dollar.

Re: How deep is the rot in America’s banking industry?

#188

Post by TMWNN »

jjtheblunt wrote: post #172
tptacek wrote: post #18

People seem to have a really hard time with the idea that, in the SVB debacle, the system worked effectively and pretty much the way it was planned to. It's not even clear what people are upset about. There's an article on the front page of The Atlantic today about how angry we should be about SVB, and if you read it, it's hard to figure out who those angry people should be. Equity is getting zeroed out. Management w…

> It's not even clear what people are upset about. The upset seems centered around the perception that rules were changed ex post facto to protect political donors. I get that impression from HN, from newspapers of all ilks and biases as well.

> The upset seems centered around the perception that rules were changed ex post facto to protect political donors.

69% of SVB employees' donations were to Democrats over the past three years. https://unusualwhales.com/news/svb-donations>

The bank donated $74 million to Black Lives Matter. https://nypost.com/2023/03/15/svb-donated-73m-to-black-lives...>

Re: How deep is the rot in America’s banking industry?

#189

Post by 462436347 »

jahewson wrote: post #169
462436347 wrote: post #141

Today the big banks collectively agreed to inject $30bn of deposits into First Republic to sure it up: https://www.bloomberg.com/news/articles/2023-03-16/first-rep... Meanwhile, all the benevolent VC techbros had to do was collectively agree to just not withdraw all of their deposits from SVB en masse, and they couldn't even muster that. How deep is the rot in SV?

That would be irrational. It’s a Prisoner’s Dilemma and no matter what any individual would prefer to do the only rational move is to assume others will betray you. I don’t think it’s fair to ask SV to behave irrationally.

These hand-wavy appeals to rationality and game theory to justify sociopathic foot-gunning by VCs is really getting tiring.

First, it's not a Prisoner's Dilemma if the parties can communicate with each other:

https://en.wikipedia.org/wiki/Prisoner%27s_dilemma

> Two members of a criminal gang, A and B, are arrested and imprisoned. Each prisoner is in solitary confinement with no means of communication with their partner.

Second, the traditional framing of the Prisoner's Dilemma disregards the aftermath, and the lasting reputational and trust consequences of betrayal, which would be substantial for any VC that failed to cooperate, or outright backstabbed the others.

Re: How deep is the rot in America’s banking industry?

#190

Post by NovemberWhiskey »

trifurcate wrote: post #127
tptacek wrote: post #71

Earlier quoted context omitted.

No, they don't, right? They simply hold them to maturity. The reason a $100 par bond paying 2% sells for (I don't know, say) $87 when interest rates are (I don't know, say) 5% isn't that the original bond is impaired. It's that the same $100 buys you a bond that pays 3% better, so nobody will buy the bond without a discount. But the bank doesn't normally sell the bond to begin with. That's why people say banks "borro…

The bond is impaired in that sense. The concept of present value isn't made up just for fun, it's because the value of money depends upon the time at which it is available. $10 in 10 years is obviously worth less than $10 right now, which is not only captured by present value calculations but it's also plainly and intuitively visible if you make the chain of associations of high interest rates -> higher price levels…

The bond is impaired (fair value less than amortized cost basis) but from the accountancy perspective, the question is whether it's Other Than Temporarily Impaired (OTTI).

As long as the holder does not intend to sell the bond, believes that is more likely than not going to be a position where it isn't forced to sell (to generate working capital etc), and there is no likelihood of a credit loss, then the bond is not OTTI.

The subjective assessment of whether you're "more likely than not" going to be forced to sell the bond is the pivot on which this whole thing tilts. It's probably a good question whether a simple balance of probabilities is really where that standard ought to be.

Post reply on HN