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SVB Hall of Shame

svbhallofshame.wordpress.com

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Re: SVB Hall of Shame

#231

Post by antics »

notch898a wrote: post #225
antics wrote: post #223

I am a founder who had assets tied up in SVB. As someone with something to lose, I'm going to be honest that I think the people on this list mostly look incredibly stupid—both at the time and in retrospect. And I think it's worth dwelling on why. * In a catastrophic (_i.e._, non-backstopped) bank run, _most_ deposits are not getting out of the bank. Especially when the deposit sizes are very large, as they are with c…

I had to parse this a few times to understand. I think your thesis is that an investor has multiple ventures in their portfolio. And many of those ventures park their treasuries at the same bank. And by telling them a run is happening, your thesis is some or none of those ventures pull their money out faster than others, and the stragglers of the portfolio can't due to the bank run started by the investor and/or othe…

During a bank run, 0 withdrawals will complete. So if you warn portcos to withdraw _during_ the run, you save 0 treasuries. If you warn portcos to withdraw _before_ the run, you might trigger the run in which case you'd almost certainly lose 70% of portco treasuries.

I'm proposing in neither case it makes sense to encourage portcos to move their money.

Re: SVB Hall of Shame

#232

Post by shubb »

fwlr wrote: post #83

I’m not going to be using this site to guide my opinions of VCs, I don’t generally outsource that much of my opinion-making to 3rd parties. But it does broadly reflect my opinions, you could get a very rough “general direction” picture of how I think from reading it. “It’s rational to join a bank run, VCs would have been negligent to their companies if they advised to stay” I know! Believe it or not I have studied a…

I worry that... given how much high risk free rates must be hurting VCs, it was rational for them to crash a bank to force the fed to ease policy.

I'm not saying they deliberately did that. I'm just saying it would have been a smart reason to do the thing that they did.

The VCs will benefit hugely from the consequences of these events, forget the compensation.

This is what they call moral hazard.

Re: SVB Hall of Shame

#233

Post by flandish »

lynx23 wrote: post #215
fwlr wrote: post #83

I’m not going to be using this site to guide my opinions of VCs, I don’t generally outsource that much of my opinion-making to 3rd parties. But it does broadly reflect my opinions, you could get a very rough “general direction” picture of how I think from reading it. “It’s rational to join a bank run, VCs would have been negligent to their companies if they advised to stay” I know! Believe it or not I have studied a…

You're using the word "defect" to describe someone pulling their money from a bank? Seriously? It is so easy to assign blame apparently...

I agree. This all reads like a solid reminder that two things happen in that realm of highly VC funded systems:

- Investment/money management often happens by people who are very new to this process and make swift sometimes stupid decisions.

- Everyone else is clearly in the “protect profit” game, even if that means ignoring the clearly stupid things svb (and really the entire system) did/does. Mort backed securities, crap from the 08 markets, deregulation.. etc.

A failing bank should not crash the economy nor should a bunch of startups failing as a result crash too. Poor startup decisions are one thing. But “too big to fail” things maybe need to be smaller or nationalized?

I realize the site I’m on, and know I am still learning about this.

I have just, in all my (short 43) years, felt the “too big to fail” reason pop up more than it seems it should because, to me, it means “gov must protect my profit, or I’ll deadman switch the economy.”

Re: SVB Hall of Shame

#234

Post by notch898a »

antics wrote: post #231
notch898a wrote: post #225

Earlier quoted context omitted.

I had to parse this a few times to understand. I think your thesis is that an investor has multiple ventures in their portfolio. And many of those ventures park their treasuries at the same bank. And by telling them a run is happening, your thesis is some or none of those ventures pull their money out faster than others, and the stragglers of the portfolio can't due to the bank run started by the investor and/or othe…

During a bank run, 0 withdrawals will complete. So if you warn portcos to withdraw _during_ the run, you save 0 treasuries. If you warn portcos to withdraw _before_ the run, you might trigger the run in which case you'd almost certainly lose 70% of portco treasuries. I'm proposing in neither case it makes sense to encourage portcos to move their money.

I think there are a lot of details missing and presumptions from this model that could change the calculus, and it would be swift and stupid decision to bet that 0 withdrawals in a bank run are going to complete, or that the first actors are expected to lose a significant share of their money if a run is triggered.

Re: SVB Hall of Shame

#235

Post by antics »

notch898a wrote: post #234
antics wrote: post #231

Earlier quoted context omitted.

During a bank run, 0 withdrawals will complete. So if you warn portcos to withdraw _during_ the run, you save 0 treasuries. If you warn portcos to withdraw _before_ the run, you might trigger the run in which case you'd almost certainly lose 70% of portco treasuries. I'm proposing in neither case it makes sense to encourage portcos to move their money.

I think there are a lot of details missing and presumptions from this model that could change the calculus, and it would be swift and stupid decision to bet that 0 withdrawals in a bank run are going to complete, or that the first actors are expected to lose a significant share of their money if a run is triggered.

Ok let's play that out. FF is the prime mover in this bank run, and the most important investment in this generation of their portfolio is Rippling. But not only did Rippling get stuck in this mess, all of the customers of their flagship product (payroll) also got stuck.

FF are incredibly smart. Their most important investment did not get out. They would have been better off not saying anything. QED. There is no hope arguing otherwise.

Re: SVB Hall of Shame

#236

Post by notch898a »

antics wrote: post #235
notch898a wrote: post #234

Earlier quoted context omitted.

I think there are a lot of details missing and presumptions from this model that could change the calculus, and it would be swift and stupid decision to bet that 0 withdrawals in a bank run are going to complete, or that the first actors are expected to lose a significant share of their money if a run is triggered.

Ok let's play that out. FF is the prime mover in this bank run, and the most important investment in this generation of their portfolio is Rippling. But not only did Rippling get stuck in this mess, all of the customers of their flagship product (payroll) also got stuck. FF are incredibly smart. Their most important investment did not get out. They would have been better off not saying anything. QED. There is no hope…

I agree the best action is to not say anything to the public until all of their money is quietly taken out (if possible). The question is if FF had done nothing, would they have been better off? That's a hell of a bet to make, to assume that no one else is part of the run and that given the deteriorating financials that it won't be coming soon (even if inadvertently in the normal course of business).

Re: SVB Hall of Shame

#237

Post by fastball »

drc500free wrote: post #226
fastball wrote: post #202

Earlier quoted context omitted.

What is your source for this? From everything I have read, the first point at which they were clearly insolvent was what I mentioned previously, when they sold a huge swath of bonds at a massive loss at or around March 8th 2023, which was less than two weeks ago.

My read is that they were either holding the MBSs as tradeable assets (in which case they had taken a massive real loss that wiped out their equity) or until maturity decades away (in which case they didn't have enough current assets to remain solvent as a bank). The depositor withdrawals forced them to admit that they had taken a massive loss because of insufficient hedging against interest rate hikes, but they didn…

But the withdrawals didn't force them to admit they had taken a massive loss, the withdrawals forced them to take the massive loss at all. It's not a loss until you sell, right? They sold to cover withdrawals.

Apparently they had $48B in withdrawals in a one-day period. Trying to imagine any bank that wouldn't need to take losses (to the point of being potentially insolvent) in order to deal with that. Yes, obviously SVB was still very poorly hedged given current interest rates, but they probably could've unwound their position in a much, much more favorable way without the run, to the point where it's possible they could've done so without ever being "insolvent".

Re: SVB Hall of Shame

#238

Post by antics »

notch898a wrote: post #236
antics wrote: post #235

Earlier quoted context omitted.

Ok let's play that out. FF is the prime mover in this bank run, and the most important investment in this generation of their portfolio is Rippling. But not only did Rippling get stuck in this mess, all of the customers of their flagship product (payroll) also got stuck. FF are incredibly smart. Their most important investment did not get out. They would have been better off not saying anything. QED. There is no hope…

I agree the best action is to not say anything to the public until all of their money is quietly taken out (if possible). The question is if FF had done nothing, would they have been better off? That's a hell of a bet to make, to assume that no one else is part of the run and that given the deteriorating financials that it won't be coming soon (even if inadvertently in the normal course of business).

Ok, I'm not sure where this is going. You previously argued that the first movers might be able to get more money out, and nonzero transactions might be processed during the run. Both are very plainly factually incorrect, even for the very first mover, even when that first mover is perhaps the most sophisticated actor in the entire sector, and even when it directly impacts the most important portco in the first mover's portfolio.

This is not a prisoner's dilemma because there is no hope for the success case. The prisoner cooperates or not, and either way they go to jail. The only rational action is for all participants to not participate.

If you have a point to make, now is the time to do it...

Re: SVB Hall of Shame

#239

Post by pas »

naet wrote: post #61

I don't think I agree with this as a mark of "shame". Were these companies wrong to pull money out of SVB when they (correctly) thought the bank might be insolvent or headed for trouble? Are we celebrating those who left their money in, despite the warnings, when they could have potentially lost it all if the government didn't step in and make an unprecedented promise to honor the deposits? Would that have been "hero…

no need for heroics, just don't "lie" about it by signing statements

Re: SVB Hall of Shame

#240

Post by rrrrrrrrrrrryan »

threatofrain wrote: post #228
naet wrote: post #61

I don't think I agree with this as a mark of "shame". Were these companies wrong to pull money out of SVB when they (correctly) thought the bank might be insolvent or headed for trouble? Are we celebrating those who left their money in, despite the warnings, when they could have potentially lost it all if the government didn't step in and make an unprecedented promise to honor the deposits? Would that have been "hero…

> when they could have potentially lost it all if the government didn't step in and make an unprecedented promise to honor the deposits Was this unprecedented? I thought the US government has always covered depositors in full beyond the $250k.

Sometimes they've been able to make all the depositors while by wiping out all the investors and selling all the assets (buildings, office chairs, etc.)

What was unprecedented this time was the promise that they'd do it regardless of whether or not they could recover enough assets.

When Washington Mutual and IndyMac collapsed in 2008, some depositors indeed never got all their money back from their uninsured accounts.

One big difference was that those banks were knowingly engaging in hugely risky schemes, while SVB was ultimately burned by making overly conservative investments.

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