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Bank run on Silicon Valley Bank

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Re: Bank run on Silicon Valley Bank

#301

Post by jongjong »

chollida1 wrote: post #294
jongjong wrote: post #243

Earlier quoted context omitted.

Why does a business need a loan? They can just sell shares/equity to raise funds. It's better in every way; there's skin in the game. Why would anyone even want to loan money to a startups? If the startup founders go out of business and flee the country, the lender loses everything. The downside is unlimited. Yet if the startup does well and it becomes a billion dollar company, the lender will get maybe 20% return on…

Well before mortgages home ownership was about 2% and we had a very small number of people who owned all the real estate because people couldn’t afford it without a loan. If your happy with going back to this that is your perogative but I would Be against your world view.

A house would only cost around 5 years' worth of the median salary. Now it's like 15 years and that doesn't even account for the fact that taxes are way higher today and so it's much harder to save... With modern tech, things should be a lot better but for most people, it's worse, much worse.

Salaries have not being keeping up with productivity gains as the economy has become anti-competitive by design. Every time money changes hands, it gets taxed maybe 30% on average... By the time $100 has changed hands 10 times, there is only $3 left out of it for the people (the rest went to the government). It centralizes everything around the government; money cannot flow too far from it. The modern economy is a giant social scheme with 0 merit. For many, it's hell on earth.

Re: Bank run on Silicon Valley Bank

#302

Post by nordsieck »

PragmaticPulp wrote: post #202
recursivedoubts wrote: post #21

Daily reminder that bank runs wouldn't be a thing if we did duration matching, forbidding banks from borrowing short and lending long. As always, the underlying problem in banking is that the banks are lying, telling two or more people they own the same dollar at the same point in time. If they locked deposits for a period of time they could safely (and morally) loan that money out without lying, and, in fact, there…

This is kind of like saying we can eliminate most automobile fatalities by eliminating cars and making everyone walk or take the train everywhere. Yes, it would solve one type of problem. But nobody wants your solution because it’s an unreasonable trade off for everyone to solve an extremely rare edge case. Single-minded optimization for single edge cases is really easy in fantasy worlds, but in the real world people…

> Yes, it would solve one type of problem. But nobody wants your solution because it’s an unreasonable trade off for everyone to solve an extremely rare edge case.

Can you explain why this is bad? People lived with hard-ish money systems for extremely long periods of time.

> The concepts of assets and liabilities are well understood in the business world. Banks aren’t “lying” and fractional reserve banking does not mean that banks are creating fake dollars. Liabilities have always been part of the equation.

I mean, it's really about how you define words.

Most people believe that they have money in the bank. When in reality, they have unsecured debt to the bank. Although to be fair, for most people that debt is backstopped by FDIC/NCUA.

But, of course, that unsecured debt is often referred to as money, so I can't really blame them too much.

Re: Bank run on Silicon Valley Bank

#303

Post by post_below »

honeybadger1 wrote: post #291
gnicholas wrote: post #282

Earlier quoted context omitted.

TBH I wasn't sure what the commenter was trying to communicate. That she had been cancelled? That she should be cancelled? I definitely wouldn't have flagged such a comment, but I would agree that it wasn't exactly adding to the discourse.

It seemed like a tongue in cheek joke about people projecting that women are strong(like south park style joke I guess) and if you say they are not..you are cancelled? I dunno, I appreciate humor, but yeah that was swift admin action on that.

Most of the time, comments that don't add anything of substance to the conversation get downvoted or flagged at HN.

Re: Bank run on Silicon Valley Bank

#304

Post by sanderjd »

jongjong wrote: post #286
FormerBandmate wrote: post #163

Earlier quoted context omitted.

They use discounted cash flows to model them, which are dependent on loans as a key component. VCs also use loans themselves from time to time, and their investors can use loans to invest in them.

Loans by modern banks rely on the issuance of new currency; it's a scheme which relies on diluting the value of citizens' existing currency. It's unethical; it's stealing from the many to enrich the few who will receive the credit once it's spent into the economy (going into friends' businesses). Kind of like how Carl Icahn sat on the Hertz board, made Hertz take out a huge loan, used the credit to award a huge contr…

This is so misguided. Just raising interest rates by a few points has resulted in many thousands of people losing their livelihoods in under a year, because companies could no longer justify taking out loans. What you're suggesting is eliminating loans altogether. This is a fun dorm room thought experiment, but it's not even hyperbolic to say that if it were actually pursued, it would result in a huge number of deaths by starvation.

Re: Bank run on Silicon Valley Bank

#305

Post by gnicholas »

honeybadger1 wrote: post #291
gnicholas wrote: post #282

Earlier quoted context omitted.

TBH I wasn't sure what the commenter was trying to communicate. That she had been cancelled? That she should be cancelled? I definitely wouldn't have flagged such a comment, but I would agree that it wasn't exactly adding to the discourse.

It seemed like a tongue in cheek joke about people projecting that women are strong(like south park style joke I guess) and if you say they are not..you are cancelled? I dunno, I appreciate humor, but yeah that was swift admin action on that.

I think the vast majority of flagging is by regular HNers (with some karma threshold), not admins.

I try not to make too many jokes on HN. They have to be very clearly funny and/or very spot-on to survive HN's this-isn't-reddit ethos, which seems to be pretty strictly enforced.

Re: Bank run on Silicon Valley Bank

#306

Post by sanderjd »

jongjong wrote: post #243
chollida1 wrote: post #82

Earlier quoted context omitted.

I assume you are trolling, but in case you are not. How would you provide loans to help get businesses started? How would you provide loans to people to buy their first homes? How would you provide loans so people can afford to go to school? How would you provide loans to buy a vehicle so people can get to/from their job before they get a paycheck? How would farmers afford to buy land, equipment and plant crops befor…

Why does a business need a loan? They can just sell shares/equity to raise funds. It's better in every way; there's skin in the game. Why would anyone even want to loan money to a startups? If the startup founders go out of business and flee the country, the lender loses everything. The downside is unlimited. Yet if the startup does well and it becomes a billion dollar company, the lender will get maybe 20% return on…

These would be good questions to ask an undergraduate microeconomics professor. They have answers. It's not that nobody has ever thought about this before.

Re: Bank run on Silicon Valley Bank

#307

Post by kurthr »

uoaei wrote: post #261
mrosett wrote: post #50

Earlier quoted context omitted.

> Daily reminder that bank runs wouldn't be a thing if we did duration matching, forbidding banks from borrowing short and lending long. If we really want to prevent bank runs, shouldn't we just forbid lending? Snark aside, transforming duration is a big part of the value that banks add. In general, there's a lot of demand for lending short and borrowing long. Banks add value (and risk) by taking the opposite side of…

This pre-supposes a pretty radical (yet normalized nowadays) economic philosophy: that growth per se is good. A more nuanced approach would be to value and triage lending opportunities according to how much they contribute to the heating up of the economy, and how much opportunity for future sustainability they provide.

I'll ask then. What happens to an organism when it stops growing?

It's an exponential process and there are really only 2 states except for an infinitesimally small space between.

Re: Bank run on Silicon Valley Bank

#308

Post by _blz2 »

boringg wrote: post #147

Reminder - SVB is small bank - highest market cap was 50B -- trading at 5B. Low level of contagion. If it does fail - definitely will be felt by start ups with cash at the bank.

It had 198B in deposits end of 2021. Market cap may be less, but a bank run is quite significant.

Re: Bank run on Silicon Valley Bank

#309

Post by pclmulqdq »

Terretta wrote: post #64
pera wrote: post #52

Earlier quoted context omitted.

Yeah sounds like textbook bank run or cryptocurrency exchange collapse, it's bizarre that this kind of things keep happening every few years.

It's bizarre a recurring thing recurs? Particularly when 'venturing' into areas more profitable because of more risk? Here's their loan risk analysis as of EOY: https://i.imgur.com/ZWG157R.jpg Don't miss 14% to "innovation economy influencers"…

What's bizarre is that this is a particularly big bank to be going under. Most of the ones that die are tiny because banks have a real economy of scale here.

Lehman and Washington Mutual were truly exceptional cases in the 2008 crisis, and SVB may be right there with them in a few weeks.

Re: Bank run on Silicon Valley Bank

#310

Post by danielmarkbruce »

JohnFen wrote: post #209
danielmarkbruce wrote: post #181

Earlier quoted context omitted.

Everyone doesn't need to know or care in many cases. The FDIC insures deposits up to $250k. That covers the vast majority of accounts at most banks. So a run won't occur at most banks. There were hardly any runs in 2008 for this reason - the relatively few "run type things" which happened were where big interbank exposures existed. SVB's customers are weighted significantly more towards businesses who will have more…

> SVB's customers are weighted significantly more towards businesses who will have more than $250k in the bank. If you have that much money, FDIC is not adequate for you (and isn't intended to be). There are other mechanisms for those sorts of depositors. Surely, those businesses got solid financial advice and are using them, right?

The mechanism is to watch the banks you have money in. A company still has to pay it's bills. To pay bills, you need some money in a bank, it's unavoidable.

So, let's say you are a company with 4 banks accounts. Each has $500k in it. One of them is SVB. You probably just move the $500k into one of the other bank accounts. It's no big deal per se, but you do it. That's a run on the bank if lots of companies do the same thing.

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