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SVB Hall of Shame

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Re: SVB Hall of Shame

#281

Post by fwlr »

MacroChip wrote: post #278
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…

It wasn't a prisoner's dilemma. Cooperating gets you almost nothing while defecting gives you benefit. It was nearly the opposite of the prisoner's dilemma. Couldn't another school of thought "blame" those who didn't participate loudly?

“Cooperating gets you almost nothing while defecting gives you benefit”

That is the prisoners dilemma. What you have offered here is in fact an accurate statement of the payoff matrix for the prisoners dilemma in the case where the other prisoner cooperates.

Re: SVB Hall of Shame

#282

Post by hnfong »

rrrrrrrrrrrryan wrote: post #240
threatofrain wrote: post #228

Earlier quoted context omitted.

> 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…

> while SVB was ultimately burned by making overly conservative investments.

This isn't true, interest rates risk of securities of long duration (especially when current fed interest rate is zero) is well known to be risky by anyone who has a cursory understanding of the matter.

Re: SVB Hall of Shame

#283

Post by hnfong »

462436347 wrote: post #155
462436347 wrote: post #78

These people absolutely deserve to be named and shamed. If the big, "evil" banks can cooperate for the collective good of their industry and the wider economy as they did today by injecting $30 billion of deposits into First Republic to forestall its collapse, there's no reason why these supposedly enlightened, rational VCs couldn't at a minimum collectively agree to just not completely withdraw their deposits from S…

And before any more midwits play the "Prisoner's Dilemma" card to defend this: 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. The guilty parties here could communicate with each other , and could cooperate, just like the banks did today by aiding First…

In a textbook prisoner's dilemma, the prisoners both get a hefty sentence if they failed to cooperate and both defected. They had a lot to gain from cooperating.

In the SVB situation, most of the losses are borne by the bank, investors of the bank, and the general public (in the sense that it caused financial instability across the nation). It's not a prisoner's dilemma because the downside to not cooperating is mainly borne by other people. The VCs and the startups who decided to "defect" are fine.

I'm personally unable to understand the anger here and finger pointing here, the bank was obviously in a bad shape due to their assets being underwater, why would bank clients have a moral responsibility to continue depositing in a bad and failing bank?

----

And btw, the fact that parties could communicate with each other doesn't really change the game much. And nobody in their right mind would sign an agreement to keep assets in a bank or face penalties just because of some moral obligation to protect shareholders of a bank that made risky bets. That's just nuts IMHO. Anyone is free to create a time deposit if that's what they want to do.

Re: SVB Hall of Shame

#284

Post by hnfong »

fwlr wrote: post #281
MacroChip wrote: post #278

Earlier quoted context omitted.

It wasn't a prisoner's dilemma. Cooperating gets you almost nothing while defecting gives you benefit. It was nearly the opposite of the prisoner's dilemma. Couldn't another school of thought "blame" those who didn't participate loudly?

“Cooperating gets you almost nothing while defecting gives you benefit” That is the prisoners dilemma. What you have offered here is in fact an accurate statement of the payoff matrix for the prisoners dilemma in the case where the other prisoner cooperates.

In prisoner's dilemma cooperating gives both parties the most benefit in aggregate, while defecting gives on party additional benefit at the expense of a steep disadvantage for the other party. Also note that if all parties defect they all end up in a rather undesirable state.

For the SVB bank run, the main loser is the bank, who isn't party to this game (of whether to keep deposits or not). Even if everyone defected, the early defectors don't lose anything. And arguably, it can be foreseen that even late defectors don't lose anything either due to SVB marginally in the "too big to fail" category, or at least, the startup ecosystem being "too important to fail".

Re: SVB Hall of Shame

#285

Post by hnfong »

syllablehq wrote: post #172
kondro wrote: post #91

Call me naïve, but if I put money in a bank I should be able to get it back whenever I want. If I didn't want it to be liquid, I'd buy something less liquid. The very concept of a bank run is ridiculous. If all a bank's customers want their cash back, they should be able to get it back without affecting the liquidity of the bank. Transaction accounts don't earn me anything and have fees of their own. There's little i…

Yes, this is naïve, but it's a typical assumption. Cash _should_ be liquid, and almost everyone operates with the assumption that it always _will_ be liquid. but fiat cash is not what people think it is. A dollar in your bank account is not real. It's more like a share in the bank corporation which may or may not be perfectly pegged to the approximate value of the non-elected Fed's manipulated US dollar. Fiat is a th…

> It's more like a share in the bank corporation

What the heck? No that's just outright wrong. SVB shares are basically worth nothing these days. Depositors are getting something back. If you're not familiar with the relative priority of bailors, secured creditors, depositors, debtors and shareholders during a bankruptcy proceeding, I suggest you read up more before making confident and borderline condescending statements about the common person's naïvety.

Re: SVB Hall of Shame

#286

Post by erik_seaberg »

tablespoon wrote: post #149
kondro wrote: post #91

Call me naïve, but if I put money in a bank I should be able to get it back whenever I want. If I didn't want it to be liquid, I'd buy something less liquid. The very concept of a bank run is ridiculous. If all a bank's customers want their cash back, they should be able to get it back without affecting the liquidity of the bank. Transaction accounts don't earn me anything and have fees of their own. There's little i…

> Call me naïve, but if I put money in a bank I should be able to get it back whenever I want. If I didn't want it to be liquid, I'd buy something less liquid. The very concept of a bank run is ridiculous. If all a bank's customers want their cash back, they should be able to get it back without affecting the liquidity of the bank. Then the product you really want is a safe deposit box to put your literal cash in. Th…

Please do not store valuables in a bank safe deposit box. Customers have come back and found strangers’ stuff, or nothing, and courts have upheld banks’ almost complete disclaimers of liability in rental contracts.

(This is in the US, I wouldn’t know whether other countries also have this problem.)

Re: SVB Hall of Shame

#287

Post by hnfong »

davtbaum wrote: post #136

Perhaps I’m an outlier here, but doesn’t this feel a bit exaggerated? I’m not sure why the author (or, for that matter HN in general) feels so strongly about this. In the end, everyone was made whole. VCs acted in the best interest of the companies they back, and SVB made some really poor decisions which caused them to implode. What exactly is the story here?

Some misguided people thinking tech startups are supposed to care more about maintaining the stability of the banking sector over whether they can pay their employees next week.

Interestingly enough nobody is blaming politicians and/or the Fed for causing all this in the first place. I mean, I get that tech and VC money in particular benefitted hugely from the zero interest rate environment in 2011~2021, but still, I fail to see where the moral obligations come from.

Re: SVB Hall of Shame

#288

Post by hnfong »

jrockway wrote: post #180
Danieru wrote: post #140

Earlier quoted context omitted.

You are confused about how fractional reserve works. The 10x multiplier is on the bank's equity. For every dollar of home loan there is a dollar or more of deposits. The multiplier effect of fraction reserve occurs over iterated loans and depositing. The fraction term comes in because the bank can lend out a fraction, less than 1, of deposits.

Yup. A bank run is problematic because if you keep 99% of the money but 100% of your customers want cash today, then you're screwed.

The more modern treatment of this situation is that if you sold the mortgage on the open market as a mortgage backed security you might still be solvent as long as the MBS is valued at least at face value.

The real problem with failing banks is that interest rates rose steeply, and thus the MBS devalued by a significant amount.

Re: SVB Hall of Shame

#289

Post by fmajid »

op00to wrote: post #249
fmajid wrote: post #247

Earlier quoted context omitted.

As a former SVB customer, they understood the needs of startups like no other bank, and this will have adverse implications for the startup ecosystem, innovation and future economic growth not just in the US but also China and Europe. The incompetent top management who invested deposits in long-maturity T-bills with mediocre rates are not the same as the front-line personnel who had the relationships with the startup…

Why do tech startups have different banking needs than other ventures?

Lots of cash, lumpy or no revenue, no credit history, need to lease equipment like servers for those that run in a data center. Mitchell Hashimoto of HashiCorp describes it here, even if his is an extreme example:

https://mitchellh.com/writing/my-startup-banking-story

Re: SVB Hall of Shame

#290

Post by erik_seaberg »

gmd63 wrote: post #222

As I post this, the original post has 360 points posted 3 hours ago and is ranked lower than a post with 260 posted 14 hours ago. Interesting.

Scores decay over time; HN doesn’t want the same high scoring articles stuck to the front page forever.

http://www.righto.com/2013/11/how-hacker-news-ranking-really...

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