America's pensions can't beat Vanguard but they can close a hospital • Hacker News Board

Re: America's pensions can't beat Vanguard but they can close a hospital

#51

Post by aresant » Tue, Feb 17, 2026, 4:13 PM UTC

From first principles public pension funds are broken.

The "Safe Withdrawal Rate" assumed by many private individuals planning for their own retirement assumes a withdrawal rate in the 3 - 4% range based on the "trinity study" - https://en.wikipedia.org/wiki/Trinity_study

Meanwhile, American public pensions are structurally engineered around a 7%+ SWR - this was recently confirmed again by the median goal by the National Association of State Retirement Administrators.

The perpetual "under funded" nature, and all the return hunting etc in pension fund management can be explained by that disconnect.

But this then belies a very uncomfortable acknowledgement which is that we cannot afford the government workforce currently in place requiring us to either:

(a) Raise taxes to increase contributions.

Or

(b) Somehow make due with less government :)

Re: America's pensions can't beat Vanguard but they can close a hospital

#52

Post by epistasis » Tue, Feb 17, 2026, 4:13 PM UTC

lotsofpulp wrote: post #31

epistasis wrote: post #24

> Larry Summers warned against “moral hazard lectures” and demanded SVB depositors be made whole immediately in 2023, months after calling student loan relief inflationary and unfair. Moral hazard for borrowers, bailouts for banks. Not lost on the public. I can't believe I'm about to say something that could be construed as a defense of Larry Summers, but here goes: bank depositors are not engaging in risky behavior,…

> bank depositors are not engaging in risky behavior, Because the taxpayers (and all users of USD) repeatedly bail them out. I could define anything as not being risky if I knew taxpayers would bail it out. More importantly, if there is no risk, what purpose does a bank serve? They’re a pretty bloated middleman if their sole purpose is to update a database to reflect incoming and outgoing cash flow. The government sh…

The FDIC insures $200k of deposits because banks are not supposed to be risky. Thats taxpayers bailing out everybody in order to keep banks as "not risky"

In particular the article incorrectly states that the bank was bailed out. It was not. The bank failed. Depositors who were running their non-profit in the Bay Area did not lost all their charitable contributions.

The bank failed because it had placed deposits into US Treasury bonds that were temporarily worth less for sale on the open market than they would be at maturity. When Peter Thiel started a bank run by telling all his investments to pull their funds, that exposed the SCB mismanagement.

When the depositors were bailed out, taxpayers didn't lost anything, it was a wash. We could have paid at bond maturity or now, but it made little difference to us.

Re: America's pensions can't beat Vanguard but they can close a hospital

#53

Post by lotsofpulp » Tue, Feb 17, 2026, 4:13 PM UTC

bpt3 wrote: post #46

lotsofpulp wrote: post #31

Earlier quoted context omitted.

> bank depositors are not engaging in risky behavior, Because the taxpayers (and all users of USD) repeatedly bail them out. I could define anything as not being risky if I knew taxpayers would bail it out. More importantly, if there is no risk, what purpose does a bank serve? They’re a pretty bloated middleman if their sole purpose is to update a database to reflect incoming and outgoing cash flow. The government sh…

Taxpayers don't bail out bank depositors, the FDIC (which is insurance paid for by the banks) does. And banks do a lot more than what you described, which I have to assume you know already.

Insurance priced for damages capped at $250k per person per bank or whatever it is. If the insurance covered unlimited damages, then this wouldn’t be a discussion.

Re: America's pensions can't beat Vanguard but they can close a hospital

#54

Post by munk-a » Tue, Feb 17, 2026, 4:13 PM UTC

triceratops wrote: post #40

lotsofpulp wrote: post #31

Earlier quoted context omitted.

> bank depositors are not engaging in risky behavior, Because the taxpayers (and all users of USD) repeatedly bail them out. I could define anything as not being risky if I knew taxpayers would bail it out. More importantly, if there is no risk, what purpose does a bank serve? They’re a pretty bloated middleman if their sole purpose is to update a database to reflect incoming and outgoing cash flow. The government sh…

Banking is a basic utility. Penalizing customers of a business for the business going under is bonkers. We learned this lesson during the Great Depression. Bank shareholders or creditors are engaging in risky behavior and should face the full consequences of bank failures. No bailouts for them.

I dislike that the SVB bailout happened without a revision to FDIC insurance rules. It felt like a good time to reevaluate those rules (if the limit needs to be raised then lets raise it) and encode the new version to ensure consistency of insurance going forward. SVB accounts getting a full bailout without any formal shift towards that being the future policy felt arbitrary - either we want that policy or we don't - lets not just change the rules for a single case.

Re: America's pensions can't beat Vanguard but they can close a hospital

#55

Post by triceratops » Tue, Feb 17, 2026, 4:13 PM UTC

epistasis wrote: post #37

triceratops wrote: post #23

Earlier quoted context omitted.

Index crashes have happened many times in the 20th and 21st centuries. The fact that index ETFs didn't exist for most of that period isn't relevant. If they had existed they would've crashed because they follow indices.

The point is that the ETF tracks its index, so what does it even mean to say ETF crash? Isn't that just the tracked stocks crashing? The ETF has little to do with it. But if there is some other risk that's warrants the ETF label, that's very very interesting and should be discussed! It would be little known or novel ETF mechanics.

> so what does it even mean to say ETF crash ? Isn't that just the tracked stocks crashing?

Yes. I've learned to differentiate between the words people use and what they actually mean, rather than being literal.

Since index ETFs make up a large portion of people's investments they fear the value of those ETFs tanking. Obviously this is due to the underlying stocks' prices dropping This has happened many times in the past, most (in)famously in 1929.

Re: America's pensions can't beat Vanguard but they can close a hospital

#56

Post by ericd » Tue, Feb 17, 2026, 4:13 PM UTC

nradov wrote: post #14

OGEnthusiast wrote: post #2

I don't understand why we don't just ban private equity. Seems like zero value-add to the actual real economy.

Ban companies from owning other companies? How would that work exactly? Private equity is a convenient whipping boy for ignorant, low-information HN users who don't understand the basics of how finance works. You can certainly find examples of destructive or unethical behavior if you dig deep enough. What you don't see in the news are all the cases where PE saved companies that would have otherwise gone bankrupt.

Sure, people mostly call out private equity when you see a group trying to cobble together local monopoly power over some necessity of life just to extract more from everyone, or trying to financially optimize something by that was never financial before. There are of course many more benign examples that no one pays attention to. But the fact remains that there are PE firms doing massively harmful things to extract wealth.

Re: America's pensions can't beat Vanguard but they can close a hospital

#57

Post by WarmWash » Tue, Feb 17, 2026, 4:14 PM UTC

calcifer wrote: post #35

nradov wrote: post #14

Earlier quoted context omitted.

Ban companies from owning other companies? How would that work exactly? Private equity is a convenient whipping boy for ignorant, low-information HN users who don't understand the basics of how finance works. You can certainly find examples of destructive or unethical behavior if you dig deep enough. What you don't see in the news are all the cases where PE saved companies that would have otherwise gone bankrupt.

> You can certainly find examples of destructive or unethical behavior if you dig deep enough Dig deep enough? Please. Merely tilt your head slightly upwards, and let your eyes feast on countless examples.

The problem here is that only bad/negative/failed cases make it to discussion.

It's like researching the safety of driving by only looking at local news station websites. It will seem like the only thing those cars do is crash and kill people.

Re: America's pensions can't beat Vanguard but they can close a hospital

#58

Post by avidiax » Tue, Feb 17, 2026, 4:14 PM UTC

lotsofpulp wrote: post #31

epistasis wrote: post #24

> Larry Summers warned against “moral hazard lectures” and demanded SVB depositors be made whole immediately in 2023, months after calling student loan relief inflationary and unfair. Moral hazard for borrowers, bailouts for banks. Not lost on the public. I can't believe I'm about to say something that could be construed as a defense of Larry Summers, but here goes: bank depositors are not engaging in risky behavior,…

> bank depositors are not engaging in risky behavior, Because the taxpayers (and all users of USD) repeatedly bail them out. I could define anything as not being risky if I knew taxpayers would bail it out. More importantly, if there is no risk, what purpose does a bank serve? They’re a pretty bloated middleman if their sole purpose is to update a database to reflect incoming and outgoing cash flow. The government sh…

Depositors are lending their money to the bank at low interest. They may seek risk in terms of increased yield on their savings account, but FDIC insured banks will have trouble meeting their requirements while offering high yields on their accounts.

Banks provide security for deposits as well as liquidity (velocity of money), and slight inflationary pressure.

Wiping out depositors doesn't prevent much moral hazard since the depositors are unsophisticated, so they are unable to differentiate risk among banks.

Re: America's pensions can't beat Vanguard but they can close a hospital

#59

Post by lokar » Tue, Feb 17, 2026, 4:14 PM UTC

nradov wrote: post #14

OGEnthusiast wrote: post #2

I don't understand why we don't just ban private equity. Seems like zero value-add to the actual real economy.

Ban companies from owning other companies? How would that work exactly? Private equity is a convenient whipping boy for ignorant, low-information HN users who don't understand the basics of how finance works. You can certainly find examples of destructive or unethical behavior if you dig deep enough. What you don't see in the news are all the cases where PE saved companies that would have otherwise gone bankrupt.

the PE business model depends on a lot of discretionary financial regulation.

For example, banks are given pretty generous capital rule treatment when they loan money to PE firms to increase leverage. We could stop that. They also get a lot of tax preferences that increase returns to investors and managers.

Re: America's pensions can't beat Vanguard but they can close a hospital

#60

Post by triceratops » Tue, Feb 17, 2026, 4:15 PM UTC

munk-a wrote: post #54

triceratops wrote: post #40

Earlier quoted context omitted.

Banking is a basic utility. Penalizing customers of a business for the business going under is bonkers. We learned this lesson during the Great Depression. Bank shareholders or creditors are engaging in risky behavior and should face the full consequences of bank failures. No bailouts for them.

I dislike that the SVB bailout happened without a revision to FDIC insurance rules. It felt like a good time to reevaluate those rules (if the limit needs to be raised then lets raise it) and encode the new version to ensure consistency of insurance going forward. SVB accounts getting a full bailout without any formal shift towards that being the future policy felt arbitrary - either we want that policy or we don't -…

Agreed.