Joint statement by the Department of the Treasury, Federal Reserve, and FDIC • Hacker News Board

Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC

#361

Post by [deleted] » Sun, Mar 12, 2023, 11:28 PM UTC

lopkeny12ko wrote: post #322

version_five wrote: post #112

So they made their decision, everyone can move on. I just hope nobody forgets how prominent VCs behaved during the brief period of uncertainty. The idea of some noble class of investors championing disruption is dead. They're just a bunch of rent seekers like everybody else. For some silly reason I had some respect for the startup industry before this, now I see it as a joke. It's great at a personal level that "foun…

What did VCs do wrong here? They warned of impending solvency problems at SVB and told founders to withdraw their money ASAP. And indeed, the bank failed the next day. The companies in trouble are those who didn't listen to the VCs.

[deleted]

Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC

#362

Post by femiagbabiaka » Sun, Mar 12, 2023, 11:28 PM UTC

lopkeny12ko wrote: post #322

version_five wrote: post #112

So they made their decision, everyone can move on. I just hope nobody forgets how prominent VCs behaved during the brief period of uncertainty. The idea of some noble class of investors championing disruption is dead. They're just a bunch of rent seekers like everybody else. For some silly reason I had some respect for the startup industry before this, now I see it as a joke. It's great at a personal level that "foun…

What did VCs do wrong here? They warned of impending solvency problems at SVB and told founders to withdraw their money ASAP. And indeed, the bank failed the next day. The companies in trouble are those who didn't listen to the VCs.

Part of the issue is a common one: assigning blame for actions taken by individuals to the collective. It’s a nasty internet trope. But these things are true:

- the crisis was at the most caused and at the least exacerbated to the point of no return by the advice that some firms gave

- the general zeitgeist amongst certain firms and from particular individuals in firms leaned towards libertarian ideology, which seemed to go out the window when ish hit the fan. I can really only find one prominent example of this, so I don’t know if it’s fair to paint all of VC-land with the same brush

- it is probably the case that there are members of firms in both group one and group two, which looks bad, because panicking at the last second looks bad, especially when your panic screws (for your own benefit) a business partner of decades who was essentially only in a risk zone because they chose to do business with you. That’s an oversimplification of course, but it all is

Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC

#363

Post by hypothesis » Sun, Mar 12, 2023, 11:28 PM UTC

lazzlazzlazz wrote: post #347

version_five wrote: post #112

So they made their decision, everyone can move on. I just hope nobody forgets how prominent VCs behaved during the brief period of uncertainty. The idea of some noble class of investors championing disruption is dead. They're just a bunch of rent seekers like everybody else. For some silly reason I had some respect for the startup industry before this, now I see it as a joke. It's great at a personal level that "foun…

An equally silly error would be concluding that all VCs are like this. Although we heard absolutely unhinged and insane panic from a few (like Jason Calacanis), and some milquetoast statements from others (Redpoint), we heard no panic from the largest players. I won't reshare anecdotes here, but I heard stories over the weekend about intense and direct conversations between the largest VCs and the Fed.

By any chance were those largest players part of bank run on SVB?

[0] https://twitter.com/tomharari/status/1634577650856632321

Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC

#364

Post by ajross » Sun, Mar 12, 2023, 11:28 PM UTC

lambic2 wrote: post #185

version_five wrote: post #112

So they made their decision, everyone can move on. I just hope nobody forgets how prominent VCs behaved during the brief period of uncertainty. The idea of some noble class of investors championing disruption is dead. They're just a bunch of rent seekers like everybody else. For some silly reason I had some respect for the startup industry before this, now I see it as a joke. It's great at a personal level that "foun…

I don't understand this comment. 1) SVB was not managed by VC's. 2) SVB went under because they bought US Treasuries, not because they took risky bets on startups.

> 1) SVB was not managed by VC's.

I think this is very much in question. Silicon Valley Bank was absolutely part of a cohesive microeconomy. There's no other explanation for the absolutely uniformity with which all those startups were using it for what should have been 100% commodity banking services. Those startups all banked with SVB because their VCs told them to.

And the VCs told their startups to bank with SVB because... we don't know yet. But any time you have a signal this strong, there's a driver.

Add to that the fact that the moment all those startups seemed likely to lose banking services, however temporarily, those same VCs freaked the fuck out of their minds on twitter and started shrieking in all caps about the end of western capitalism. That's not mere concern for their poor startups (most of whom were going to fail anyway, after all -- they're startups!). These VCs were exposed to the SVB failure. They were leveraged somehow and about to get caught holding the bag.

There was some kind of insider dealing going on with SVB. It wasn't just a bank. We for sure know that much. Whether we have criminal fraud or not is an open question.

Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC

#365

Post by dragonwriter » Sun, Mar 12, 2023, 11:28 PM UTC

jnwatson wrote: post #303

pdq wrote: post #68

Yet another new precedent by the Fed and FDIC. All depositors are now guaranteed their funds if a bank fails. This is the definition of Moral Hazard [1]. [1] https://en.wikipedia.org/wiki/Moral_hazard

No it isn't. In the history of the FDIC, no depositor has ever lost money, regardless of balance. The whole point of the FDIC is to avoid contagion, and they nipped this in the bud, again. Moral hazard is if they made the investors whole. They did not. Depositors are not investors.

> In the history of the FDIC, no depositor has ever lost money, regardless of balance.

This is false. No depositor has ever lost insured money. Uninsured money has been lost.

E.g., Washington Federal Bank for Savings failure in 2018 [0] has resulted in dividend payments for uninsured balances covering only 41.66% [1], and that took nearly three years.

[0] https://www.fdic.gov/resources/resolutions/bank-failures/fai...

[1] https://closedbanks.fdic.gov/dividends/bankfind/Dividendinde...

Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC

#366

Post by postalrat » Sun, Mar 12, 2023, 11:29 PM UTC

lambic2 wrote: post #254

cragfar wrote: post #164

It's pretty embarrassing how many people thought depositors should be on the hook for this. A banking system where companies or people would actually lose money due to bank failures (especially one caused by a run on the bank) would just lead to people only using BOA, JPM, and some merged WF/Citi/whoever else.

I have a feeling a lot of these people are Bitcoin maximalist. They want depositors to suffer so that they feel vindicated for their faith in Bitcoin.

I for one just don't like to see the rules change every time the rich need a little help.

Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC

#367

Post by turingfeel » Sun, Mar 12, 2023, 11:29 PM UTC

jnwatson wrote: post #303

pdq wrote: post #68

Yet another new precedent by the Fed and FDIC. All depositors are now guaranteed their funds if a bank fails. This is the definition of Moral Hazard [1]. [1] https://en.wikipedia.org/wiki/Moral_hazard

No it isn't. In the history of the FDIC, no depositor has ever lost money, regardless of balance. The whole point of the FDIC is to avoid contagion, and they nipped this in the bud, again. Moral hazard is if they made the investors whole. They did not. Depositors are not investors.

I’m inclined to believe that may not be entirely true [1]. It seems there is some evidence of depositor losses but they have been incredibly rare and insubstantial.

[1] https://money.stackexchange.com/questions/129772/has-anyone-...

Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC

#368

Post by joe_the_user » Sun, Mar 12, 2023, 11:29 PM UTC

hn_throwaway_99 wrote: post #40

Yellen and the FDIC is in a tough spot. This is the important line, "Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law." Thus, on one hand, I'm glad they're doing this, as it should help prevent wider bank runs, and it ensures that banks are the ones that are actually paying for it. At the same time, this is yet another exam…

At the same time, this is yet another example of changing the rules in the middle of the game. Yellen has just broadcast that FDIC insurance is essentially unlimited, as long as you can threaten wider disruption to the economy.

No, that's been the implicit rule since 2008 at least (arguably earlier). If anything, not supporting all depositors would have been changing the rules mid game and so would have lead to massive disruption.

The thing a lot of people aren't getting is that the rules of the game haven't been the law but what the Fed does for a while.

Certainly, the game as it's played favors the wealthy, yes. That should be changed. Knocking everything over by suddenly changing expectation wouldn't change things, just disrupt everything. But also, it wouldn't happen anyway 'cause the game is too important.

Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC

#369

Post by threeseed » Sun, Mar 12, 2023, 11:29 PM UTC

LewisVerstappen wrote: post #235

version_five wrote: post #112

So they made their decision, everyone can move on. I just hope nobody forgets how prominent VCs behaved during the brief period of uncertainty. The idea of some noble class of investors championing disruption is dead. They're just a bunch of rent seekers like everybody else. For some silly reason I had some respect for the startup industry before this, now I see it as a joke. It's great at a personal level that "foun…

> prominent VCs behaved during the brief period of uncertainty A ton of the prominent VCs were writing out checks from their personal bank accounts so that founders could meet payroll. > For some silly reason I had some respect for the startup industry before this, now I see it as a joke Wait seriously? You somehow lost more faith from this than you did from - crypto - Adam Neumann - $100m seed rounds and like 30 oth…

> Having your bank account randomly disappear isn't one of the risks that anyone should have to take.

But that is the risk founders chose when they put their money in (a) any bank and (b) specifically SVB.

Your money is only insured to $250k. SVB had no CRO, lobbied against regulation, made no efforts to comply with Basel 3 and was engaging in risky bets that many had previously warned about.

CEOs have a fudiciary responsibility to understand and mitigate risks. And expecting taxpayers to bail you out (either directly or indirectly) when your incompetence causes harm is simply not fair.

Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC

#370

Post by DennisP » Sun, Mar 12, 2023, 11:29 PM UTC

huhneverthot wrote: post #271

version_five wrote: post #112

So they made their decision, everyone can move on. I just hope nobody forgets how prominent VCs behaved during the brief period of uncertainty. The idea of some noble class of investors championing disruption is dead. They're just a bunch of rent seekers like everybody else. For some silly reason I had some respect for the startup industry before this, now I see it as a joke. It's great at a personal level that "foun…

Who would've thought post-hand-wringing-over-poor-300k-salary-tech-workers realizing their disposability that we would have another event reminding HN just how different the rules are for capital owners than the rest of us. Why is that tech workers, many of whom easily have earned over a million dollars in salary over the past few years can't be told to "live within their means"? Why is it that the same VCs that rall…

Yes, regular people get their bank accounts automatically protected, and the capital owners had to sweat for a few days.

The bank is not bailed out, it's out of business, its shareholders get nothing, and its execs just lost their jobs. The bank's customers got bailed out.