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A Bank of One's Own

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Re: A Bank of One's Own

#21

Post by latchkey »

grey-area wrote: post #17
latchkey wrote: post #9

> I'm perplexed, then, to see so many people gleefully celebrate the collapse of an institution that helped level the playing field for people from all backgrounds. It isn't about being gleeful. This bank took massive risks, which were enabled by Trump changing the laws (and they supported), which then allowed them to take even more risky bets (aka: level the playing field). https://www.motherjones.com/politics/2023/…

This was a crisis of confidence. Most other US banks are just as exposed to long term bonds and mortgages and have also been hung out to dry by the fed raising rates after a decade of zirp and we distorted yields and prices. Yes this bank failed to hedge risk appropriately, but if customer confidence fails, all major US banks would be vulnerable to exactly the same situation. IMO share/bond holders should lose if all…

> Most other US banks are just as exposed to long term bonds and mortgages

And maybe that is the crux of the issue here?

https://www.cnbc.com/2018/05/24/trump-signs-bank-bill-rollin...

“When the president signs this, we put community banks back in the mortgage lending business, which is really exciting for me,” Sen. Heidi Heitkamp, D-N.D., told CNBC on Wednesday.

"exciting"

> Which fractional reserve bank is actually safe from a bank run?

No FRB is 'safe', but the people who hold money in there are safe as long as they are managing their 250k risk...

https://www.intrafi.com/solutions/depositors/

Re: A Bank of One's Own

#22

Post by erik_seaberg »

hn_throwaway_99 wrote: post #5

I thought this was a great post. I've commented elsewhere that I'd be pissed at the moral hazard of unsecured depositors getting a federal bailout (though not if the feds just assist in finding a buyer or do as much as possible to ensure depositors can access their funds quickly), but at the same time I'm saddened by so much of the gleeful tribalism I see online (but not too saddened - many of the "dancing on your gr…

The moral hazard of trusting a licensed bank? Do we want depositors to be hesitant to do that? The Fed won’t even allow “narrow banks” (that keep a 100% reserve ratio and cannot fail) because they think it’s crucial for our deposits to be available for loans and bonds.

Re: A Bank of One's Own

#24

Post by WalterSear »

grey-area wrote: post #18
WalterSear wrote: post #12

Earlier quoted context omitted.

It wasn't. It made bad bets on bonds and lost $2 billion dollars of the $200+ billion dollars it held in deposits. I must be missing something, because I fail to see how this is such a big deal, or why anyone will be taking much of a haircut on their deposits.

The prices SVB and other banks use for their assets are not marked to market. Selling it all, today, would mean that they get back far less than the total deposits. Selling it over time or parking it with a temp bad bank would be fine though and that is what fdic will probably do.

That's to my point though: there's not going to be a fire sale.

Re: A Bank of One's Own

#25

Post by photochemsyn »

As an aside, this is a curious situation that points to capitalism (in its current form) being something of a continuation of aristocracy but by other means:

> "Some employees can't afford to buy their equity at all, so that when their startup is acquired or goes public, they earn nothing from the outcome, looking on in silence while their colleagues become millionaires. The people who find themselves in this situation are, of course, disproportionately those who work in lower-paying roles, and who don't have family or friends to borrow from."

A society in which each person is given something like a 'equity stake' at adulthood might work. It would be their decision as to how to use it - buy equity in a startup, pay for a college education, start a small business, etc. Maybe certain limitations on frivolous activities would make sense. It's similar to universal basic income, but more delivered in one chunk rather than as a pittance spread out over time. It would create a much more even playing field while still allowing for competitive success stories.

Re: A Bank of One's Own

#26

Post by Danieru »

WalterSear wrote: post #12
RcouF1uZ4gsC wrote: post #3

> But the only way they were able to participate in that world, and serve as a role model for others, was by quietly borrowing from a bank that understood what it meant to be a young venture capitalist with carry, but not enough savings. Using borrowed money for venture capital seems very risky and not something that a bank should be celebrated for enabling.

It wasn't. It made bad bets on bonds and lost $2 billion dollars of the $200+ billion dollars it held in deposits. I must be missing something, because I fail to see how this is such a big deal, or why anyone will be taking much of a haircut on their deposits.

2 Billion is only what they lost on the ATM portfolio. What triggered the attempted capital raise.

The unrealized loses were a further 16Billion+.

18Billion lost of a capital base of 200Billion is clearly a big deal.

Re: A Bank of One's Own

#27

Post by dools »

The obvious fact is that we don’t need private banks to run our payment system or provide deposit accounts. It can be done perfectly well by allowing individuals to have accounts at the central bank through a postal savings system.

There is probably some value in having banks to do loan underwriting and allowing private credit creation but this whole thing if allowing private banks to run everything and then providing a federal guarantee of some deposits is absurd, just take that function away from the private sector.

Re: A Bank of One's Own

#28

Post by obblekk »

erik_seaberg wrote: post #22
hn_throwaway_99 wrote: post #5

I thought this was a great post. I've commented elsewhere that I'd be pissed at the moral hazard of unsecured depositors getting a federal bailout (though not if the feds just assist in finding a buyer or do as much as possible to ensure depositors can access their funds quickly), but at the same time I'm saddened by so much of the gleeful tribalism I see online (but not too saddened - many of the "dancing on your gr…

The moral hazard of trusting a licensed bank? Do we want depositors to be hesitant to do that? The Fed won’t even allow “narrow banks” (that keep a 100% reserve ratio and cannot fail) because they think it’s crucial for our deposits to be available for loans and bonds.

Depositors who hold more than 250k in checking? The probably should be expected to be sophisticated capital managers rather than kept on safety wheels.

The alternative is scarier: infinite deposit insurance exposes government to larger and larger defaults requiring them to regulate banks down to which industries and loans they can work with or not.

Re: A Bank of One's Own

#29

Post by grey-area »

WalterSear wrote: post #24
grey-area wrote: post #18

Earlier quoted context omitted.

The prices SVB and other banks use for their assets are not marked to market. Selling it all, today, would mean that they get back far less than the total deposits. Selling it over time or parking it with a temp bad bank would be fine though and that is what fdic will probably do.

That's to my point though: there's not going to be a fire sale.

Well let’s hope not, and let’s hope they arrange an orderly process by 9AM Monday. Friday was not great and appeared to take them by surprise.

Re: A Bank of One's Own

#30

Post by WalterSear »

Danieru wrote: post #26
WalterSear wrote: post #12

Earlier quoted context omitted.

It wasn't. It made bad bets on bonds and lost $2 billion dollars of the $200+ billion dollars it held in deposits. I must be missing something, because I fail to see how this is such a big deal, or why anyone will be taking much of a haircut on their deposits.

2 Billion is only what they lost on the ATM portfolio. What triggered the attempted capital raise. The unrealized loses were a further 16Billion+. 18Billion lost of a capital base of 200Billion is clearly a big deal.

Yes, that is different.
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