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Yellen says government will help SVB depositors but rules out bailout

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Re: Yellen says government will help SVB depositors but rules out bailout

#241

Post by auntienomen »

imustbeevil wrote: post #174
koolba wrote: post #153

Earlier quoted context omitted.

> Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? Easy, pay out $250K per account, then distribute the rest pro rata based upon closing balance from when the fed's took over. If they have to wait because assets need to be liquidated then sucks to be them. I'm sure they can get their money faster if they agree to a haircut. > “This is a bail…

> Money to depositors for amounts greater than $250K is a bail out. They have no right to that money from the Feds. No. The feds aren't giving anyone fed money, they're selling SVB's assets and giving the people they owe their own money back. There isn't enough money to give everyone 100% back, so they won't be getting 100% back. There's no extra government money making anyone "whole". They're just winding down the a…

Extra money is precisely what Yellen is proposing. The government will backstop the depositors to prevent a run on every other non-SIFI. This is the right move.

Re: Yellen says government will help SVB depositors but rules out bailout

#242

Post by senttoschool »

avianlyric wrote: post #188
Edmond wrote: post #152

Earlier quoted context omitted.

>The government will use the bank assets to make customers, not owners, whole. The reason SVB is in receivership is because they don't actually have the ability to make all their depositors whole. Any scenario where uninsured depositors end up with all their money back is likely to be a bailout.

> The reason SVB is in receivership is because they don't actually have the ability to make all their depositors whole. No, SVB is in receivership because they can make their depositors whole right now . They have most of the assets, it’s just that liquidating them immediately would result in losses far greater than SVB can afford, but that’s what a bank run demands. The feds can take over, make depositors whole now…

In this scenario, the government will likely lose money because the existing assets will not cover the loans made out to depositors.

For example, if the government buys the 10 year bonds yielding 1-2%, they will lose money based purely on future value.

Re: Yellen says government will help SVB depositors but rules out bailout

#243

Post by softwaredoug »

There’s a theme of NEVER AGAIN comments in these SVB posts. Harkening back to 2008 financial crisis.

Doing your best to make depositors whole (maybe not 100%, but as much as possible) is not a bailout ala 2008. It’s generally not very controversial financial policy that prevents a financial contagion like 1929.

No 10 person company is going to split their 2.5 mil 10 ways to get insurance. And they’re not going to have the sophistication to manage that. Nor do we want to force small businesses to keep cash under mattresses or have to evaluate a banks balance sheet.

If you want to think of a bank account in those terms, then you expect a radically different financial system. Which is fine, but don’t expect such a system to exist in our lifetimes, or during the current crisis.

Re: Yellen says government will help SVB depositors but rules out bailout

#244

Post by thinkmassive »

CPLX wrote: post #171
manuelabeledo wrote: post #132

I see a lot of unexpected saltiness and clear misconceptions in any thread about SVB. “Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? “This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank asse…

Perhaps I can address your point about “generic screeching” against the tech world, by noting that the criticism here is often specific and direct. Not generic. The usual suspects have been trying to frame it in terms of the regular old startup workers that will be affected. But what about these entrepreneurs, the taxi drivers who were completely fucked by the onslaught of Uber and Lyft using financial engineering to…

> My feeds are full of sociopathic libertarians calling for government to make sure they never suffer any consequences for their failure to adequately manage risk?

Not sure to whom you’re referring, but they’re not libertarians.

Re: Yellen says government will help SVB depositors but rules out bailout

#245

Post by baq »

a13n wrote: post #197
martythemaniak wrote: post #166

Earlier quoted context omitted.

This whole saga has exposed the shocking financial illiteracy in this industry. There are laws and procedures about how to handle the situation. Banks fail all the time and the FDIC disposes of them all the time. Depositors will get their insured money on monday. The FDIC will then dispose of all the banks assets and return the proceeds to its creditors, that is depositors. Calling for the government to guarantee all…

Second biggest bank failure in the history of the US requires exceptions to be made due to the sheer volume of companies and assets involved here. We don’t want to erode global trust in US banks and dollars do we?

Normally HN has some of the best quality comments on the whole internet but the amount of FUD and just plain wrongness in this topic is surreal.

The truth is: the bank’s risk management was done by a couple pigeons: one to peck ‘buy long duration’ and the other to peck ‘approved’. There is no other bank like this. Spillover risk is zero. The folks who are shouting about systemic bank run are talking their books (Ackman please shut up now if you’re reading this)

Re: Yellen says government will help SVB depositors but rules out bailout

#246

Post by Edmond »

avianlyric wrote: post #188
Edmond wrote: post #152

Earlier quoted context omitted.

>The government will use the bank assets to make customers, not owners, whole. The reason SVB is in receivership is because they don't actually have the ability to make all their depositors whole. Any scenario where uninsured depositors end up with all their money back is likely to be a bailout.

> The reason SVB is in receivership is because they don't actually have the ability to make all their depositors whole. No, SVB is in receivership because they can make their depositors whole right now . They have most of the assets, it’s just that liquidating them immediately would result in losses far greater than SVB can afford, but that’s what a bank run demands. The feds can take over, make depositors whole now…

A fundamental component of finance valuations and rules is time.

Saying that the fed should stretch out the timeline of asset sales so as to ensure they mature into their valuations doesn't align with how things work. Time value of money is a thing, if we consider even moderate inflation for instance, the cash you can get today is worth less in the future. In order words if SVB assets are worth $100 today, it makes no sense for me to hand them $100 in cash today while I wait a decade for their bonds to mature, just so I can sell them for $100 again.

That is before we get to the fact that the fed is not in the business of managing investments for random failed businesses.

If some knight in shinning armor takes a look at SVB assets and deem them worth some future value that would justify the current need for cash, they'll buy the bank. So far it appears no such knight has emerged.

Re: Yellen says government will help SVB depositors but rules out bailout

#247

Post by stanleydrew »

hanoz wrote: post #124
sithlord wrote: post #7

This actually makes a ton of sense, lets not forget that a bailout in this term is really pointing towards saving the bank itself, and its shareholders. There is inherent risk in equity investments, and it likely should have to suffer for its poor decisions. But when it comes to depositors, I think it makes a lot of sense to make them whole, especially in the case of SVB where the bank likely has pretty close to enou…

Bailing out the owners is obviously completely out of the question, but why bail out the depositors beyond the guarantees they knew they were getting at the time? Funny how language is being used to frame all this. For depositors it's made whole , not bailed out , when of course it's no less a bail out.

It's a matter of differing expectations.

When you purchase stock in a bank, there is a reasonable expectation that your investment could lose value.

When you deposit money with a bank (in the United States in 2023), you basically never consider the possibility that you might not get it all back.

You can certainly argue that the expectation isn't fair, but I'm pretty confident it's nearly universal.

Re: Yellen says government will help SVB depositors but rules out bailout

#248

Post by nemo44x »

Good, they need to convince depositors at all the small and medium banks to not drain their account Monday morning. Many banks have mud and longer term treasuries in their book and they’d be well under water if they had to mark to market which they would if forced to sell. The Fed has had erratic policy for a few years now and combined with the Gov flooding the market with cash and stims, all these safe places to park cash have suddenly been made into speculative investments.

We don’t need 1000 banks collapsing. Irresponsible fed and government need to own this and ensure deposits are safe. Selling everyone nearly 0 interest bonds and then jacking interest rates to the highest rates in 20 years over the course of 12 months is a scumbag move.

Re: Yellen says government will help SVB depositors but rules out bailout

#250

Post by stephen_g »

komali2 wrote: post #180
NotACop182 wrote: post #13

Earlier quoted context omitted.

Did they help depositors that lost money in the last 500+ bank collapses? Why do they get special treatment? The government has laws and rules the depositors are insured up to 250k. Either they liquidate and everyone takes a hair cut. Or they wait till the bonds mature and can pay them out. But the government should not relieve anyone past what is legally available.

This seems to be a core argument for those in opposition to shareholders getting liquidated bank assets vs depositors, but I don't really understand it because it seems to be kind of arbitrary. So there's fdic insurance, that's nice, but why does that mean anything regarding whether depositors or investors should be made whole first? The more important and real question is which option has what outcomes in terms of f…

Shareholders are paid last by law. So if depositors are not made completely whole, shareholders don’t get anything.

1. https://www.fdic.gov/consumers/banking/facts/priority.html

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