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SVB shows that there are few libertarians in a financial foxhole

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Re: SVB shows that there are few libertarians in a financial foxhole

#331

Post by geysersam »

tracker1 wrote: post #301
watwut wrote: post #277

Earlier quoted context omitted.

The actual "letting it fail" would be to pay up looses only for those insured. Those who did not insured would not be paid looses in "let it fail world".

Exactly... they liquidate the bank's assets, payout the FDIC insured, and most of the depositors only lose about 10%... the shareholders would lose more... and the executives and board potentially lose everything to pay shareholders. That's how this is supposed to work under existing rules.

Why didn't the fed decide that course of action in this case?

Seems the difference is small. Shareholders still lost everything, depositors lost nothing instead of 10% but that's a minor difference.

Guess one difference is how long it'll take before depositors can access their money. Now they'll get it immediately. If they were waiting for liquidation of the banks assets, that would probably take longer.

Re: SVB shows that there are few libertarians in a financial foxhole

#332

Post by miguelazo »

fidgewidge wrote: post #214
miguelazo wrote: post #62

Earlier quoted context omitted.

Putting aside the glut of misallocated cheap money, isn't the deregulation that allowed this (which SVB pushed for, along with many other banks/Wall Street parasites) precisely the type of policy that Libertarians advocate?

Definitely not. Most libertarians I've encountered want hard money i.e. full reserve banking with no central bank money printing. In FRB you cannot have bank runs and with a restricted central bank which can't print more money you can't have ZIRP and the wild swings all over the financial system that it had caused. Instead you have a system in which bank accounts don't pay interest but that's acceptable in many cases…

I suppose some or even most libertarians would agree with that, although that system is just rigidly regulated in a different way. I think the classic Libertarian model would be private banks, totally disassociated from government. Further, full reserve banking and fixed supply monetary systems are the stuff of fantasies. Totally infeasible in the real world.

Re: SVB shows that there are few libertarians in a financial foxhole

#333

Post by tripletao »

selectodude wrote: post #329
tripletao wrote: post #230

Earlier quoted context omitted.

Put it in bonds of whatever duration the bank chooses, but require sufficient equity that the shareholders will bear the loss and not the depositors? Interest rates didn't increase in a single step. If the SVB had been forced to recognize their losses on a continuous MTM basis, then they'd have been forced to raise capital (or liquidate if they couldn't) by late 2022, when they were undercapitalized but not insolvent…

>Put it in bonds of whatever duration the bank chooses, but require sufficient equity that the shareholders will bear the loss and not the depositors? But that's literally what they did. They put it in 10 year treasuries that they had to sell for 87 cents on the dollar because every "thought leader" in Silicon Valley had the same idea at the same time and triggered a bank run on their own bank. Everybody who has depo…

The depositors are getting 100% of their money now because the FDIC has guaranteed all deposits, including deposits in excess of the usual $250k limit. Any shortfall will be socialized among all participating banks. The SVB's shareholders didn't get bailed out, but their depositors absolutely just did.

https://www.federalreserve.gov/newsevents/pressreleases/mone...

If the SVB had been forced to recognize its loss sooner, then this government bailout wouldn't have been necessary. Perhaps they'd have succeeded in raising more capital, and survived as an operating business; or perhaps their shareholders would still have been zeroed and their creditors would have seen a partial recovery. The depositors would have been fine either way though, no government bailout required.

Re: SVB shows that there are few libertarians in a financial foxhole

#334

Post by yunwal »

actually_a_dog wrote: post #323
yunwal wrote: post #305

Earlier quoted context omitted.

> The other good news is that it will probably net out to costing little to nothing in the long term If it cost nothing with no risk, surely a larger banking institution would have been willing to step in to solve it. > Seems very much relevant to what the FDIC was created for The FDIC was created to be an insurance corporation, not to bail out banks at their discretion.

Banks are not being "bailed out." Depositors are. SVB no longer exists. Now, you can certainly argue over the merits of bailing out depositors, but disingenuously framing it as a "bank bailout" is not the position to start from. On that point, the government does have an obligation to "provide for the common defense and the general welfare of the United States," and that is clearly one of the overarching purposes of…

This is really semantics to me. Customers gave SVB their money because they paid high returns and engaged in risky behavior. That money was used to fund exec and employee salaries. People who take risks should bear the responsibility. Whether the bank still exists or not doesn't really concern me, since the people who ran it into the ground can turn around and do the same thing tomorrow.

> "provide for the common defense and the general welfare of the United States,"

We'll have to agree to disagree that bailing out well-off startup founders and employees is the best way to provide for the general welfare of the United States. I'd start with people undergoing medical bankruptcy, then about a million other categories of people before I got to them. Either way, I'd prefer the accounting to be transparent. The FDIC isn't acting as a corporation here, so they shouldn't be a corporation.

Re: SVB shows that there are few libertarians in a financial foxhole

#335

Post by mturmon »

anigbrowl wrote: post #309
elzbardico wrote: post #11

The author ignores that behind the downfall of SVB was a climate of excess liquidity on the markets, a bonanza created by the authorities that made SVB see itself with a glut of funds. Now, SVB, loaded with money, could have tried loaning it like crazy, but instead, decided to go the conservative way and buy bonds. Someone could argue that they could have foreseen that this abundance of liquidity in the markets, alon…

You understand the fundamental problems here and have chosen to share your insights for free. Banks have professional employees who are paid decent money to make these kind of risk assessments even more rigorously. Why would we accept the idea that they can get by with being less objective? I am not an investor at all and even I understand that when the Fed is raising rates to control inflation portfolio owners need…

> Stop giving these [bank] guys a pass...

Indeed. Greg Becker, the CEO of SVB, was a member of the Board of Directors of the San Francisco Fed, up until last Friday. If anyone had some insight about what federal monetary policy was doing, he should have.

Re: SVB shows that there are few libertarians in a financial foxhole

#336

Post by worksonmine »

strbean wrote: post #128
worksonmine wrote: post #53

Earlier quoted context omitted.

SVB locking money they might need access to is the FEDS fault do I understand you correctly? Did they hold a gun to their head? I'm not saying they're doing anything different than their competitors, but that's a stupid excuse. The only thing that's broken is the financial system. A customer should be aware when depositing money that that money might be locked away, and agree to those terms, and get a cut. This is SV…

[flagged]

If I can't access my funds because they're invested without my approval I don't give a fuck if you invested in immortality. I don't have to explain why I want it right fucking now. I'm buying hookers and coke why do you care give me my fucking money. Also I want my cut.

Re: SVB shows that there are few libertarians in a financial foxhole

#337

Post by initplus »

em500 wrote: post #315
initplus wrote: post #165

Earlier quoted context omitted.

Splitting deposits to stay under the 250k limit is artificial behaviour that doesn’t change the overall risk profile for FDIC. The total amount of money covered by insurance is the same regardless of how it’s subdivided. Splitting up deposits isn’t the intended outcome by regulators here. It doesn’t actually achieve anything meaningful.

Splitting deposits to stay under the 250k limit would have reduced funding for this specific, narrow focused bank with an exceptionally high duration risk. It's less likely that the customers would try to pull 250k from 4 bank accounts at once because they believe all of them are unsafe than 1M from a single account. How could that not change the overall risk profile for the FDIC?

Imagine a world where this splitting is normal.

If SVB depositors had split their deposits up and stored them at other banks, other banks depositors would have done the same and split their deposits up - and stored some of them at SVB. So from FDIC's perspective, the total amount of deposits at every bank (and so the risk they take as an insurer) after this splitting is the same.

FDIC insurance limited to 250k and a banking system where everybody splits their deposits up into 250k/bank is the same risk profile for FDIC as unlimited FDIC insurance and no splitting up of accounts, assuming the same deposit distribution between banks.

Re: SVB shows that there are few libertarians in a financial foxhole

#338

Post by colinsane »

tracker1 wrote: post #285
fidgewidge wrote: post #236

Earlier quoted context omitted.

This book isn't about libertarians. It's about anarchists. "Once upon a time, a group of libertarians got together and hatched the Free Town Project, a plan to take over an American town and completely eliminate its government ... They built a tent city in an effort to get off the grid. The bears smelled food and opportunity." Nobody who knows anything about libertarians and is trying to accurately represent it would…

I think that government should exist to implicitly ensure essential infrastructure. What is essential is up for debate, but generally can include, common defense, upholding contract law and enabling transportation, trade and commerce. In this day and age, I think internet, telephone and radio communications would be included as well. Anarchists will often identify as Libertarians, as there are also left-leaning Liber…

> Anarchists will often identify as Libertarians, as there are also left-leaning Libertarians that I don't really get as well.

of the anarchists i’ve met i have yet to hear any accept the label of “Libertarian”. most of the handful i know used to be Libertarian but then passed through that into anarchism as they chased some ideal of rights/freedoms that turned out to be incompatible with the Libertarian views toward property rights.

Re: SVB shows that there are few libertarians in a financial foxhole

#339

Post by DrThunder »

braingenious wrote: post #15

This reminds me of one of my favorite books from the past couple years, A Libertarian Walks Into a Bear. It’s a fascinating deep dive into an attempt to create a sort of libertarian utopia in a small town called Grafton, New Hampshire. The speed at which they arrive at “we need government services” after they eviscerate government services is… unsurprising. 10/10 I highly recommend it for anyone that’s interested in…

This is the same reason communism doesn't work. "Oh the people will control everything!" Except humans always give someone power... and that power will want more power if you allow it, until you end up in a terrible spot.

The trick is to not let any one big group have too much power. It is not possible to create a society without groups taking charge and without those groups vying for power.

One thing Libertarians have right, is the idea that many government services are out of control with spending and not doing anything to actually help the people they supposedly serve.

Re: SVB shows that there are few libertarians in a financial foxhole

#340

Post by fidgewidge »

miguelazo wrote: post #332
fidgewidge wrote: post #214

Earlier quoted context omitted.

Definitely not. Most libertarians I've encountered want hard money i.e. full reserve banking with no central bank money printing. In FRB you cannot have bank runs and with a restricted central bank which can't print more money you can't have ZIRP and the wild swings all over the financial system that it had caused. Instead you have a system in which bank accounts don't pay interest but that's acceptable in many cases…

I suppose some or even most libertarians would agree with that, although that system is just rigidly regulated in a different way. I think the classic Libertarian model would be private banks, totally disassociated from government. Further, full reserve banking and fixed supply monetary systems are the stuff of fantasies. Totally infeasible in the real world.

They're both entirely feasible. The usual canard is that without fractional reserve there is no lending or not "enough" lending, but with full reserve there is still lending of course because people would like a return on their assets. There would be less bad lending but that's what we want, even if it leads to a temporary drop in GDP.
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