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SVB collapse could mean a $500B venture capital ‘haircut’

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Re: SVB collapse could mean a $500B venture capital ‘haircut’

#51

Post by landemva »

kurthr wrote: post #8

Play bank run games, win bank run prizes. Really, I don't love the regulatory arbitrage played by SVB and unhedged duration risk, nor the moral hazard created by the bailout, nor the somewhat bizarre attitude of companies holding huge $100Ms of uninsured deposits earning minimal interest (why have more than 1 months cash flow?), but really this was a bank run pure and simple. When you have to plan to lose >20% of you…

> not raising short rates would increase inflation

Proxy war in eastern Europe, with USA dumping big $ there, is causing price rises.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#52

Post by chimeracoder »

cwilkes wrote: post #48
arcticbull wrote: post #45

Earlier quoted context omitted.

> nor the moral hazard created by the bailout There was no moral hazard created because bank shareholder equity got zeroed out. Bank management and shareholders were not protected against the 'find out' phase.

The moral hazard is that there isn’t a a limit to the $250k FDIC insurance so people that put money into the bank don’t have to care what the bank does. So there’s no incentive to work with a bank that took the time and money to pass a stress test — in fact the one that didn’t bother to do any testing can give better terms as they aren’t spending money to be safe.

> So there’s no incentive to work with a bank that took the time and money to pass a stress test

This assumes that there future uninsured deposits are guaranteed (they may be, yes, but this is a bet, not a certainty).

Regardless, you're making the case that consumer choice is not sufficient pressure to enforce safety measures. Which is correct, but we already knew that! That's the purpose of regulations.

Expecting industries to self-regulate in response to market forces is a losing battle.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#53

Post by reverend_gonzo »

mitthrowaway2 wrote: post #32
LapsangGuzzler wrote: post #30

Earlier quoted context omitted.

> Can't we sort of blame the Fed for that too? No. SVB chose to pursue a risky investment strategy with no risk manager at the helm for months, the banking equivalent of stupidly storing all of your nitrous fertilizer in one place and then being surprised when the whole thing blows up. SVB made numerous, critical mistakes in their management. If anything, one could argue the Fed enabled this stupidity by keeping rate…

Oh, I'm not looking to absolve SVB of their responsibility for their position. I think you misread my comment. I mean blaming the Fed for the yield curve inversion and the steep change in long-term rates, and thus value of long-term debt, as opposed to only low overnight interest rates. The Fed does not deserve blame for SVB's choice to load up on that long-term debt without hedging those risks. I'm answering the par…

I’d say it’s more like the Fed opened up a “Free ammo and cocaine store”. Most banks came by, got their free coke and went on their way. SVB came alone and said “well let’s have a fucking party: get rocked up and play some Russian roulette.” And every other bank that might’ve been eyeing that ammo realized “holy shit this is for reals.”

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#54

Post by mmmmmbop »

gumballindie wrote: post #21
guestbest wrote: post #3

As an independent developer (misv) working on my projects part time out of necessity, I look forward to a tech market where well funded businesses give away their software for free until they establish a monopoly mostly disappear. I don’t think this will do it, but it helps make me think they won’t have spigots of easy money flowing in to their accounts.

This comment is underrated. Basically what these businesses do is they sell their products at a dumping cost. If that practice is illegal for physical products then so should it be for software.

I agree with the sentiment, but it's not correct that price dumping is illegal for physical products.

Trade treaties and WTO rules cover dumping in international trade for obvious reasons, but to my knowledge, there's no law in the major western jurisdictions covering domestic dumping.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#55

Post by bagacrap »

landemva wrote: post #51
kurthr wrote: post #8

Play bank run games, win bank run prizes. Really, I don't love the regulatory arbitrage played by SVB and unhedged duration risk, nor the moral hazard created by the bailout, nor the somewhat bizarre attitude of companies holding huge $100Ms of uninsured deposits earning minimal interest (why have more than 1 months cash flow?), but really this was a bank run pure and simple. When you have to plan to lose >20% of you…

> not raising short rates would increase inflation Proxy war in eastern Europe, with USA dumping big $ there, is causing price rises.

How does that domestic impact service sector wages

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#56

Post by nostromo »

landemva wrote: post #51
kurthr wrote: post #8

Play bank run games, win bank run prizes. Really, I don't love the regulatory arbitrage played by SVB and unhedged duration risk, nor the moral hazard created by the bailout, nor the somewhat bizarre attitude of companies holding huge $100Ms of uninsured deposits earning minimal interest (why have more than 1 months cash flow?), but really this was a bank run pure and simple. When you have to plan to lose >20% of you…

> not raising short rates would increase inflation Proxy war in eastern Europe, with USA dumping big $ there, is causing price rises.

Inflation was surging well before the Ukraine invasion.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#57

Post by joe_the_user »

kurthr wrote: post #8

Play bank run games, win bank run prizes. Really, I don't love the regulatory arbitrage played by SVB and unhedged duration risk, nor the moral hazard created by the bailout, nor the somewhat bizarre attitude of companies holding huge $100Ms of uninsured deposits earning minimal interest (why have more than 1 months cash flow?), but really this was a bank run pure and simple. When you have to plan to lose >20% of you…

...really this was a bank run pure and simple

I've been around and around on this question. Insolvent or illiquid, illiquid or Insolvent... etc. It was solvent on paper, by what it had to record on it's books. But it was insolvent by mark-to-market (which it didn't have to use but which the sophisticated but not-that-sophisticated investors, say venture capitalists, would assume is the reality). But hey, you could say it was solvent by the Fed supporting every bank it's size. Then again, the Fed didn't come through in time, so maybe the run was the reality [1].

And you could say "this was a run 'cause picking on SVB in particular was unfair since a significant portion of all bank capital in long term bonds that put them on an "overhang" of unrealized losses. [2] But maybe, the Fed needed to cool the economy so killing a few banks was needed and SVB and signature were the most logical.

[1] Matt Levine in Bloomberg https://archive.ph/uIYtY [2] https://finance.yahoo.com/news/u-banks-sitting-1-7-211212318...

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#58

Post by bagacrap »

cwilkes wrote: post #48
arcticbull wrote: post #45

Earlier quoted context omitted.

> nor the moral hazard created by the bailout There was no moral hazard created because bank shareholder equity got zeroed out. Bank management and shareholders were not protected against the 'find out' phase.

The moral hazard is that there isn’t a a limit to the $250k FDIC insurance so people that put money into the bank don’t have to care what the bank does. So there’s no incentive to work with a bank that took the time and money to pass a stress test — in fact the one that didn’t bother to do any testing can give better terms as they aren’t spending money to be safe.

What's an individual supposed to do, pay for an audit of a bank's balance sheet?

The bank had poor risk management, regulators were asleep at the wheel, depositors are blameless. Although I will say that a startup with millions in the bank should probably have a CFO.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#59

Post by labcomputer »

gumballindie wrote: post #21
guestbest wrote: post #3

As an independent developer (misv) working on my projects part time out of necessity, I look forward to a tech market where well funded businesses give away their software for free until they establish a monopoly mostly disappear. I don’t think this will do it, but it helps make me think they won’t have spigots of easy money flowing in to their accounts.

This comment is underrated. Basically what these businesses do is they sell their products at a dumping cost. If that practice is illegal for physical products then so should it be for software.

Well, sure, but that’s essentially impossible to define for a product with zero marginal cost. You’d be making it illegal for a small company with x sales/year to sell for the same price as a large company with 2x sales/year.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#60

Post by bagacrap »

somedudetbh wrote: post #35
kurthr wrote: post #8

Play bank run games, win bank run prizes. Really, I don't love the regulatory arbitrage played by SVB and unhedged duration risk, nor the moral hazard created by the bailout, nor the somewhat bizarre attitude of companies holding huge $100Ms of uninsured deposits earning minimal interest (why have more than 1 months cash flow?), but really this was a bank run pure and simple. When you have to plan to lose >20% of you…

> unhedged duration risk, nor the moral hazard created by the bailout Just making sure I understand your point here, are you just against "banking"? Unhedged duration risk w/ LOLR backup is essentially "the banking business". What's the moral hazard? The equity is wiped out, most of the debtors are wiped out. The only moral hazard I see is we've disincentivized individual depositors from assessing the financial stren…

Other banks had less duration risk and some used hedges. No bank is going to profit from this particular environment but it's possible to manage assets such that the entire business doesn't implode.
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