They are bailing out SVB. They announced a special assessment on other banks - which is passed along to all of us in the form of higher fees and interest rates. SVB incompetence set off the run. Rather than normal bond ladders high schoolers can grasp, they invested their reserves in long term fed funds and mortgage backed securities in …
They are bailing out SVB. They announced a special assessment on other banks - which is passed along to all of us in the form of higher fees and interest rates. SVB incompetence set off the run. Rather than normal bond ladders high schoolers can grasp, they invested their reserves in long term fed funds and mortgage backed securities in 2021 despite inflation and the feds making clear they’d raise rates to address it. SVB just held the damn things as they tanked. Then a funding round flopped and they had to sell below par because interest rates have been rising for over a year. Depositors ran on the bank because it was being run by incompetent people. It is absolutely a bail out.
All true but I am not persuaded that depositors should be wiped out. If a business cannot make payroll, who suffers the most?
I will watch for administrative and criminal proceedings against the SVB board and senior officers. Notoriously, nobody responsible for the bank and insurance failures of 2007-10 ever stood trial or even suffered a meaningful administrative penalty, like a lifetime ban from any position in the finance industry, and Obama bragged about that.
We have seen time and again, that financial harm to the businesses means nothing to the psychopaths who run them. Even the loss of their future stock options leaves them far richer than 99% of the population. It is time to put them in prison and leave their families impoverished. Maybe that will change some behaviors.
And, to be clear, a5 years of the Fed suppressing interest rates led banks like SVB into investments far too risky for a public bank. Then, the incredible federal deficits under Biden set the stage for the inflation that led the Feds to jack up interest rates, which in turn reduced the value of the securities SVB held, making them potentially insolvent. All those government officials are no doubt beyond reach, but it is important that they be shamed and their reputations ruined... won't happen, but justice does demand no less.
Depositors would not have been wiped out. They would have gotten $0.85-$0.90 on the dollar over $250K. If you don’t let business fail when their is incompetence, and people fe we l that, you get more incompetence. The people in Ohio can’t even get water filters for their houses. If this has been a bank for regular people and normal small businesses there would be no “you get your cash back.” This is cementing a 2-tiered system. Government spending is so massive the government pucks winners and losers. Now regulators are picking who is immune from poor decisions. It’s sick.
I think you might want to check your arithmetic. According to this morning's Wall Street Journal, at the end of 2022, SVB had $157 billion in deposits on their books from approximately 37,000 depositors. That works out to on average over $4 million per depositor. Where was the other 80%+ going to come from after the FDIC chips in their $250K guarantee? Most of the depositors would have gotten CRUSHED had Mr. Taxpayer not stepped in to bail them out AGAIN. Same circus - different clowns.
For the math: Banks must have reserves and assets (like loans) that will be sold to cover the depositors. Based on filings by SVB and discounts to par the company's assets - loans they made, treasuries they own, mortgage-backed securities they own - the market value of SVB assets should cover around 90% of uninsured deposits.
The difference will be made up by taxpayers - well, the 99.999999% of taxpayers' with a bank account (which is usually necessary to actually pay taxes). They will levy a fee against the banks that didn't tank to cover the uninsured deposits not covered by FDIC or recouped through SVB asset auctions - and we will pay higher fees and interest rates as a result.
Who keeps over $250k in a bank account? My guess is that it's people who have LOTS of money, i.e., those who can afford to lose $25k-$40k without a second thought.
When these startups are funded by VC banks the loaned funds are reqd. to be deposited with the lender.
IMO the fact that most of these firms have no revenue made a bank run more likely as they can only make payroll from their SVB deposit (and not next week's invoices, for example).
They had a ton of crypto reserves on deposit as well. This also would have been avoided if they engaged in basic hedging or variable timeframe bonds like every other business on the planet when faced with inflation and promises of rising interest rates. Buying and holding long term treasuries and mortgage-backed securities with no hedge as they tanked for over a year is incompetence.
Depositors are never wiped out. We have a system for failed banks. The bank is seized. Insured deposits, up to $250K, are immediately available. The banks is sold or the bank assets are liquidated. Uninsured deposits are then repaid, to the extent possible. In this case, Yellen is ignoring the $250K limit and simply printing money to make billionaires whole.
Assuming no intervention, assuming things work as pre-determined by current regs and policies, then Silicon Valley is gutted, we lose a lot of tech companies that help keep us competitive in the world, and by mid-week, Regional Banks across the USA are failing.
Distinguish between depositors and bank executives and shareholders, and politicians. The latter set up an environment conducive for failure with COVID lockdowns, inflationary policies, and negligent regulation. The bank was negligent, invested in way too many long-term Treasuries and not recognizing the impact of the tightening tech investment climate. The depositors are victims. If we punish them, pretty much every business reacts by moving their funds to CitiBank, Chase, and BankOfAmeria because they are too big to fail.
And for Little Tech, waiting a year to make them whole is not an option. The climate for VC's to invest in small tech is dried up. Nobody is giving new lines of credit to little tech in 2023. They will just die.
I love the argument that "Too Big to Fail" now must become "None Too Small to Fail" (No individuals need apply) all in the name of striking a blow against BIG BAILOUT.
Compassion is always most shameless when it drunkenly blows capitalism.
$250K. Thems the rules.
I'm not sure VC's realize the contagion that will spread among the population on news of a bail out.
Definitely the Wrong Time.
Definitely the Wrong People.
The wind is blowing a completely different direction. Spitting on the little guy (again) is not going to be a great option here.
The one thing about COVID is that it made it completely obvious who the real essential workers are in this country--and surprise surprise it's not VCs. It turns out (surprise surprise) that the more money you make the less essential you are to society.
We live in a fake economy. All crypto shitcoins make perfect sense when you think of them as anti-capitalist performance art.
Our whole economy is really a shitty crypto coin. We are selling NFT's of pictures of fake money. Money as a measure of productivity is long dead.
The least productive sector of our society uses money and finance to extract the productive wealth of the people who do the actual work that society requires.
I'm not persuaded that we "lose" a lot of tech companies. That's like saying that in fall, everything dies and doesn't come back. Then comes winter. Then comes spring...
Avoiding punishment simply allows everyone to skate. I've lost everything....you learn some lessons from that. No one "bailed" me out. I just went down with the ship. Yes, I think it's ok to bail out the depositors but I would have been ok with all of them going down with the ship too. Why? Because those were the risks...in bold letters, on the accounts, "deposits insured up to $250k" - last time I tried to work with a bank they changed their mind, pointed to the loan documents and took the house. Same with my business. And a judge somewhere banged the gavel and said, "next?!" And a little while later, I'm living in a basement, paying rent month to month.
And then, I recovered. Maybe rent and mortgages in Silicon valley would return to humane levels...ok...never mind. That's not how it works in Fantasy land aka Silicon Valley. But...some humility is warranted here for the Masters of the Universe. Even Janet Y who just recently testified that the banking system is fine. Uh huh.
I doubt that the amount lost by the execs of SVB is much more than the bank's capital and unsecured loans. Paying out uninsured deposits now will keep a lot of employees in work, while not costing much.
I agree with Jim C that there is a real need to go after the execs for taking stupid risks, and not notifying the regulators of the bank's problems earlier, when they were not bad enough to prevent the bank being sold to a more competent group.
It won’t happen. An executive from Lehman Brothers was involved in this. As a CPA specializing in international tax I can lose my license for incompetence - be it misstatements in the tax provision on SEC statements or in tax/ regulatory filings to any government agency. Financial advisors - if FINRA finds they acted inappropriately at best they have stains on their licenses, at worst they lose it. Lawyers - incompetence gets them disbarred. Medical doctors - incompetence costs them their licenses. Even hair stylists lose their license if they get too many complaints for incompetence. For all heavy fines and clawbacks come with these findings. Yet banking executives, who are some of the top paid CEO’s on the planet, get a total pass to move on to the next one and do the same thing. In this case the CEO has made over $33million in the last couple of years. He’ll keep every penny while our fees and rates go up despite this guy being so incompetent he failed to implement standard short term bond ladders in the banks’ reserve investments. This need to protect the most powerful yet incompetent in society is how societies implode. We do not have a regimen worried about families or the working class or the middle class despite the rhetoric. The difference in how this administration treated a VC Silicon Valley bank versus the working class being abandoned to be poisoned in Ohio should make clear the priorities of this administration are ensuring the well being of high dollar donor class cronies and absolutely no one else.
Well put. Everything Matt et al have been reporting the past couple of years indicates a society on the brink of implosion. We are now past the point of no return.
And Biden is still yelling every day that the wealthy should pay their “fair share” … except when it comes to companies biden likes. Then Biden just lies and backtracks, once again.
It is an unfortunate fact of life ,that businesses in the US all hit rough times. Farmers in the 80s lost their farms at such high rates, singers held aid concerts for them. Auto workers, boat builders, oil drillers and every other industry in the country are sometimes gutted. Even teachers are sometimes laid off en mass. Workers file for unemployment. Owners go BK and begin again. We have a system for bank failures, but it was ignored so tax payers could bail out tech billionaires, HFs and VCs. Why are Silicon Valley workers due special treatment ? The last few years have produced more profit for Silicon Valley than ever before. Were those profits split with non investor taxpayers? The US will not survive private profits and nationalized losses.
It sounds like the feds are going to go what I suggest and try to keep depositors immediately liquid. I hope the bank, its staff, and its investors are bankrupted. But if the depositors are kept in purgatory for some time to comet, among the companies which will be illiquid are payroll processing companies, so for example, it could be that on Friday, coal miners in East Palestine or who knows which workers in the heartland, go home without a paycheck.
That simply is not true. That’s not their client base. There are zero branches of SVB in the state of Ohio. The reality of their client base being wealthy VC startups is why they lobbied congress in 2018 for less regulations arguing they are not systemically important. Now they want bailed out anyway.
BofA alone has gotten $15 billion in deposits since Friday. That means small banks that played by the rules are being gutted. Many will close in mass consolidation in the coming months. There isn’t enough money to cover their losses and most aren’t as irresponsible as SVB so their investors and shareholders will be gutted, and the shareholders they serve will lose access to local banking.
The FDIC has not temporarily raised FDIC insurance to stop this chaos. The administration protected their donor class darlings. By declaring two specialized and terribly managed banks SIBs they have set off a panic. And now, in bailing out banks for billionaires the ability to protect banking competition is crushed while the 5.48% return on deposits SVB gave their customers has been protected.
I’m sorry but when people buy the propaganda this is about “labor” and meeting payroll the only thing evident is the person buying the argument is completely ignorant about the reality of SVB. I deal with VCs everyday. I don’t expect most to understand SVBs anymore than I understand how to farm (which is to say not at all). It is however disappointing that so many who have no idea what they are talking about believe the bs about “depositors” at SVB from the same liars that assured them inflation was transitory and the Inflation Reduction Act would lower inflation and that Democrats are for the working person. It’s all 💩 shit and things will continue to tank in our country until people start using their own brain rather than getting persuaded by Silicon Valley that Silicon Valley deserves to play by a different set of rules.
You misread my comment. I did not claim Ohio businesses had deposits in SVB. I said that businesses all over the country, probably Ohio too, use payroll processing companies which do have deposits tied up in SVB, and because of that, payrolls in places like Ohio will also potentially be affected. You got quite irate for no good reason, which makes you pretty much like all the rest of us in this age of media.
Secondly, nobody, least of all I, want anything other than a complete wipe-out for the bank, its stockholders, its bondholders, its executives, and its employee stock options. You conflate them with depositors and then seem to imply they are equally to blame. Depositors trust professionals are trained and regulated, and in this case the trust was not warranted. I would urge Congress and the Administration to review and conduct oversight into this failure; however, as we have come to find, Congress and the Administration will ignore any problem that might cost them even a tiny bit of popularity, and the media will cover for them doing that.
The argument I've heard put forward is not that we should single SVB depositors out for special favor. The argument from Vivek Ramaswamy and others is just the opposite, that SVB depositors should be singled out for punishment. That all failing bank depositors in this current panic in all failing banks should be made whole EXCEPT SVB depositors. I simply don't agree with that in principle. I figure most banks, if you peel away the layers, have been managed by DEI idiots with DEI regulators more concerned about pronouns than asset risk management.
Finally, destroying depositors in any of these regional banks feeds the narrative that businesses are 'stupid' to have more than 250k in a Regional Bank. The logic is hard to refute that they should not all move to the Big Four banks, and that is essentially the Great Reset accomplished.
They have done NOTHING to protect depositors at the other regional and community banks around the country. NOTHING. Bank of America has gotten $15billion in deposits since Friday. Why? Rather than temporarily increase FDIC on the local and regional banks the FDIC used all their firepower to protect dispositors at an incompetent bank that only caters to Silicon Valley. They can't afford to protect everyone, so they chose the billionaire donor class. This action is crushing banking competition, not saving it.
You have no idea who the depositors are at this bank. How many VC subscription documents have you filled out? How many emails did you get last week from VCs making capital calls saying, "hold off - we'll send updated instructions"? How familiar are you with the vast difference between deposit rates between even SVB and First Republic which cater to similar crowds, much less the 0.18% you are getting on your bank deposits like 99.9% of the population. You think Roku deserved to be "bailed out" to protect all of their 5.48% return on their $460million? Stablecoin on their 5.48% on $3.2Billion? All your monologue shows is you are not remotely linked to the VC world, and you don't understand basic banking a treasury functions, but you are very moved by blatant propaganda from those that are.
I apologize for being overly harsh. The reality is that if this administration had any interest in protecting regional banks, they would have temporarily raised the FDIC cap to some amount between $1million and $10million to protect small and regional banks over the weekend. If their intent was to protect all depositors everywhere, they would have plainly said so and they did not. Instead, they protected even multibillion-dollar deposits at SVB and signature with no promises to protect other depositors. They may come out later today or this week and raise the FDIC limit claiming they are treating everyone equally, but it will only be because the money has already flooded the big 4 and people will be far too tired and uneasy to move it back.
It was predictable that failing to protect all depositors everywhere at the same elevated level would cause runs on small and regional banks. If the administration had any interest in protecting all depositors of small and regional banks, they would have plainly communicated that before Sunday. Fully protecting SVB and Signature depositors came at the known expense of being unable to protect everyone else. Thus far my husband and I personally benefit from the events of the past week, and I still think it's wrong to treat people so unequally.
You lost me at silicon valley, worth around 14 trillion, being gutted because SVB, with a 40billion market cap, fails. Can you please not gloss over that and go through your reasoning in detail?
Sure. Of the 14 trillion, 13 or so is owned by Google, Meta, Apple, and a handful of other giagantic companies who hold their assets in banks that are too big to fail. Of the other trillion, a good chunk of it is in SVB. the 40 billion market cap is a market cap. The total deposits, at least before the run, were a bit over a quarter trillion.
This is one of the more educated blogs you can find these days. And even here, the sounding of the angry bellow horn is loud and clear. I hope we can differentiate between depositors and the bank; however, the cynic in me suggests that probably won't happen. Particularly when the ultimate goal of the Democrats - to collapse the free-market economy into a fascist economy with just a few large compliant banks - perfectly aligns with the bellowing horn of the populists.
OK, so we've established then that Silicon Valley will not be destroyed by SVB collapsing, right? Actually SVB had 211 billion in deposits with 150billion uninsured. So now we've gone down from 14 trillion to 1 trillion to a quarter trillion and now down to 150 billion.
And those depositors with 150billion would have eventually gotten most of their money back after all the assets were sold off. But short term let's say a few startups who were stupid and banked exclusively with one bank willl miss payroll for a while. We bail out the banks again system just for that? Remember, your initial justification for bailouts was to prevent silicon valley from imploding and to preserve our technological lead in the interest of national security.
I never called for a bailout. I called to make the depositors liquid immediately. I have no interest in bailing out SVB. I think you underestimate the damage to the economy by letting a good chunk of our start-ups fail, but that is a matter of opinion. You might be interested in listening to Saturday's All-In Podcast.
Calling a business 'stupid' for keeping more than 250k in a regional bank is of course something businesses will take into account. Their current path to stop being 'stupid' is to abandon Regional Banks and head for Chase. Another big Regional Bank failed Monday morning. The only reason we have not had more failures today, so far, is that there has been some intervention by the Feds.
Sorry, but we were told in 2008 that the world would end if we did not bail out the banks. Let the rich lose their goddamn money for once and maybe fiduciary responsibility will come back in vogue. Socializing losses indefinitely is not sustainable. No bailouts. Let the chips fall where they may and after some pain the economy will be stronger for it.
Making depositors liquid over $250K, is a bailout. It does not matter what you call it. Under the FDIC, everyone gets up to $250K immediately. Uninsured deposits are returned, to the extent possible, after the sale of the bank or bank assets. Congress didn't pass an exception for Biden's special people in the SV.
That’s baloney. The reason we are having issues is the Feds waisted their liquidity on SVB so they can’t up FDIC insurance to stop a run on small and regional banks. You have no idea what you are talk h about. You clearly don’t actually deal with these banks.
Yes my understanding is that the Central Banking system is very interested in the high net bankers of SVB, and that they will be banking in one of the big 6 banks now. Its beginning to look like the Cen
tral Banks are culling the small local banks and pretty soon there will oonly be the big 6. Say goodby to the regional, and local banks...
There are something like 40,000 depositors and I doubt most of them are billionaires--a lot of small and medium sized businesses using the bank primarily as a checking account, maybe a line of credit for business cash-flow purposes. and if they are limited to $250K FDIC insurance a lot of them will be wiped out and their employees and vendors will not be paid.
And I doubt if many billionaires have a large part of their holdings in bank CDs, anyway. I mean, really!!
Yes, there is no literal "wipe out," but if you are running a business with a monthly churn of a couple of million dollars, $250K doesn't do much. to keep you afloat.
This is a difficult problem, if depositors are not made whole regional banks will all fail and people and businesses will only do business with the huge, systemically important (too big to fail) banks, and personally, I don't want to see banking concentrated in a small oligopoly.
There is no perfect answer, but something along the lines of more generous FDIC coverage coupled with limitations on what banks can invest in (i.e., not highly speculative, volatile stuff like mortgage backed securities) would be a step in the right direction.
And, some prosecutions and clawbacks, both as simple justice and "pour encourager les autres," as Voltaire described the execution of Admiral Byng as an example to other admirals.
And that brings us to the essence of modern banking. The banker makes a bet. If the bet wins, the banker gets rich. If the bet loses, the taxpayers are stuck with another bailout.
Who do you think owns those small and medium sized businesses? VCs, hedge funds and billionaires Have you met many angel investors that are Nebraska widows and orphans? FDIC limits exist so everyone gets something. The smartest people in the world, did not understand FDIC insurance regulations, that most kids learn in high school General Business class? Of course they did, but they also knew the rules would never apply to them. This was simply a pay off to Dem donors. People miss paychecks, other funding is sourced. Life goes on. Tech stocks dropped more than 70% in 2001. The industry didn't end. The US cannot charge banks premiums high enough to protect every dime banked in the US. Everyone in DC knows that. It is why FDIC limits existed in the first place.
Half of me is sympathetic to small businesses and half of me isn't. I mean, there's nothing stopping them from having multiple bank accounts. Also, deep pocketed account holders will hide behind this rationale to garner public support for a bailout, and it is precisely those deep pocketed entities which will benefit the most from a bailout. I would support keeping deposits liquid only for account holders whose net worth is less than something like 10 million or so.
SVB was paying 5.48% on Deposits. I did not know this until yesterday, but now I remain more convinced the depositors don’t deserve a bail-out.The rest of us, getting well under a 1% on deposits at responsible banks that responsibly hedged their rate risk, are now footing the bill for the downside risks of deposits with a 5.48% return. That is wrong and is nothing more than reallocation of wealth to rich Silicon Valley tech companies.
Was that 5.48% on 60 month CDs or checking accounts? If on the former, given what the Fed has been doing, not a big deal, 2yr Treasury Notes have been around 4.5%. If on demand deposits then yeah, that is a real problem, tho I still worry about employees and vendors getting stiffed.
I am encouraged to see people suing these banks and their executives, and hope to see aggressive action from the regulators. The people responsible need to suffer real harm. Maybe some depositors deserve a haircut. But the employees and suppliers to those depositors not being paid for work already done or materials or services already provided? I don’t see that.
The 5.48% was on deposits and money markets. Even if it had been CD's, it is still WAY outside of the average rate for 5-year CDs. Short term rates have skyrocketed on bank CDs and even those don't surpass 5% today. The average rate in February for a 5-year CD was actually less than the treasury rate at 1.51% (see below for charts). I can't find a single five-year CD offering a rate over 5%.
The depositors were never going to be wiped out. It was always going to be a haircut. They were going to take a haircut in exchange for their return based on higher risk return rate of $5.48% on idle cash that wasn't volatile like stocks nor locked up. The deal was in return they risk a haircut in the case of a failure. Even if they weren't getting the crazy return, it is still the responsibility of businesses to manage their cash, but finding out about the returns is certainly salt in the wounds. Instead, these entities get to face zero consequences for poorly managing their businesses' cash and we are footing the bill.
I'm sorry but this "poor workers" and "poor depositors" is nothing but propaganda that only works because very few people understand just how unique and wealthy the clientele of this particular bank actually is. Don't buy the sob story. There is a reason they had such a huge rate of uninsured deposits - they were offering enormous returns and catered to an extremely wealthy clientele.
Then let's look at basic treasury function of businesses (otherwise known as cash management). Its banking 101 that you don't leave uninvested cash over FDIC unless there is an immediate business need (unless you are a VC funded startup to whom the rules don't apparently apply). Mid-month payroll applied to those businesses with payroll at least 24 times per year. That means impacted payroll must be over $6,000,000/ year. ($250,000 x 24). I'm sorry but these aren't small, struggling businesses being impacted. At the very least these are mid-sized businesses or small businesses with enormously wealthy employees. And again, the depositors were never ever going to be "wiped out." That's pure propaganda. They were going to receive the full $250K plus 50% of anything over that amount this week. Yes, it would be a few weeks or months for the rest, but they still would only take a 10%-15% haircut, and only on the uninsured portion of the deposits.
If a community of people on the NC coast has too little insurance on their homes, do you think FEMA, with its per household disaster relief limits of $250,000, is going to come spend millions per household to make up for lack of insurance rebuilding mega-mansions on the outer banks or Figure 8? Side note, I have spent a lot of time at Figure 8, and, contrary to the TV show, there is not "cut" on the island, there is no golf course on the island, you go over a drawbridge to reach the island as there is no ferry, and it's not actually in the outer banks it's on the barrier islands off the coast of Wilmington. There is a yacht club on the island, and beautiful wide sandy beaches with very few people. The reality of SVB is as different as what is being sold to the public as the depiction of Figure 8 on the TV show v reality. Should taxpayers be on the hook over for the repair of multi-million dollars homes the owners failed to properly insure? What's the difference with cash? Why should the losses be socialized above a reasonable minimum of cash for the failure of businesses the rest of us had absolutely nothing to do with?
Depositors, yes, but their employees? And suppliers? and the suppliers' suppliers? Is it reasonable to have the supplier to a supplier to a supplier vet the bank that the final customer uses? All the banks that all its customers use?
This is a fundamental problem with fractional reserve banking and won't go away, but we can make things better or worse. If I had my way we would go back to separating deposit-taking banks from investment banks, with the former tightly regulated almost like public utilities, and with robust insurance, and the latter only lightly regulated to address fraud, but no insurance at all, by law.
I would also reconsider mark-to-market, a cure for a real problem (misleading, even fraudulent accounting for assets) but worse than the disease. Mark-to-market is misleading in all cases other than imminent liquidation... the bonds will pay the income stream and repay principal as guaranteed, regardless of what interest rate swings may do to their present value. This happened in 2007-08 and again last week---M2M creates an appearance of insolvency when there is none, and that sets off a panic. I would not go back to the previous system, but M2M has created catastrophes. We need a better way.
We seem to have forgotten what Walter Bagehot knew in the 1870s---when a bank is in trouble, you should investigate its assets and liabilities. If it is solvent but temporarily illiquid, loan it what it needs to survive, at a high rate of interest, with the interest being incentive to not get into that sort of situation in the future.. If it is truly insolvent, let it die.
It would have been better to take a couple of days to go over the books and figure out whether the bank was worth saving, or not, and if not, to figure out to what extent liquidation would cover depositors. It may be that even in liquidation the uninsured depositors would have seen 80% or more in a couple of weeks, in which case I would be much more amenable to no govt intervention beyond the FDIC insurance limit and overseeing an orderly shut-down and liquidation.
I cannot know for sure, but I suspect that SVB was neither illiquid nor really insolvent at the end of February, but the M2M value of its assets, reduced more than they expected due to the Fed raising interest rates faster than they expected, to fight inflation, created the appearance of possible insolvency, which led to a run. At that point, the panic has a life of its own.
Why the only way we can fight price increases is to trash the economy and destroy jobs and businesses, is a question for another day.
America's best and brightest...from Sand Hill Rd even. I've been to Sand Hill Rd. Pitched VCs on Sand Hill Rd. They are the cream of the crop. The top layer. The creme de la creme. Is it hubris or...what was/is this? I mean, the Chief Investment Officer went to Harvard, right?
It's sad that Harvard and the other Ivys still show up so high in national and world rankings. Then again, maybe it's not so surprising since the people doing the ranking are Ivy grads themselves.
They are bailing out SVB. They announced a special assessment on other banks - which is passed along to all of us in the form of higher fees and interest rates. SVB incompetence set off the run. Rather than normal bond ladders high schoolers can grasp, they invested their reserves in long term fed funds and mortgage backed securities in 2021 despite inflation and the feds making clear they’d raise rates to address it. SVB just held the damn things as they tanked. Then a funding round flopped and they had to sell below par because interest rates have been rising for over a year. Depositors ran on the bank because it was being run by incompetent people. It is absolutely a bail out.
All true but I am not persuaded that depositors should be wiped out. If a business cannot make payroll, who suffers the most?
I will watch for administrative and criminal proceedings against the SVB board and senior officers. Notoriously, nobody responsible for the bank and insurance failures of 2007-10 ever stood trial or even suffered a meaningful administrative penalty, like a lifetime ban from any position in the finance industry, and Obama bragged about that.
We have seen time and again, that financial harm to the businesses means nothing to the psychopaths who run them. Even the loss of their future stock options leaves them far richer than 99% of the population. It is time to put them in prison and leave their families impoverished. Maybe that will change some behaviors.
And, to be clear, a5 years of the Fed suppressing interest rates led banks like SVB into investments far too risky for a public bank. Then, the incredible federal deficits under Biden set the stage for the inflation that led the Feds to jack up interest rates, which in turn reduced the value of the securities SVB held, making them potentially insolvent. All those government officials are no doubt beyond reach, but it is important that they be shamed and their reputations ruined... won't happen, but justice does demand no less.
Depositors would not have been wiped out. They would have gotten $0.85-$0.90 on the dollar over $250K. If you don’t let business fail when their is incompetence, and people fe we l that, you get more incompetence. The people in Ohio can’t even get water filters for their houses. If this has been a bank for regular people and normal small businesses there would be no “you get your cash back.” This is cementing a 2-tiered system. Government spending is so massive the government pucks winners and losers. Now regulators are picking who is immune from poor decisions. It’s sick.
I think you might want to check your arithmetic. According to this morning's Wall Street Journal, at the end of 2022, SVB had $157 billion in deposits on their books from approximately 37,000 depositors. That works out to on average over $4 million per depositor. Where was the other 80%+ going to come from after the FDIC chips in their $250K guarantee? Most of the depositors would have gotten CRUSHED had Mr. Taxpayer not stepped in to bail them out AGAIN. Same circus - different clowns.
For the math: Banks must have reserves and assets (like loans) that will be sold to cover the depositors. Based on filings by SVB and discounts to par the company's assets - loans they made, treasuries they own, mortgage-backed securities they own - the market value of SVB assets should cover around 90% of uninsured deposits.
The difference will be made up by taxpayers - well, the 99.999999% of taxpayers' with a bank account (which is usually necessary to actually pay taxes). They will levy a fee against the banks that didn't tank to cover the uninsured deposits not covered by FDIC or recouped through SVB asset auctions - and we will pay higher fees and interest rates as a result.
Who keeps over $250k in a bank account? My guess is that it's people who have LOTS of money, i.e., those who can afford to lose $25k-$40k without a second thought.
Companies that need to meet massive payrolls every couple of weeks do this - payroll needs to be liquid.
When these startups are funded by VC banks the loaned funds are reqd. to be deposited with the lender.
IMO the fact that most of these firms have no revenue made a bank run more likely as they can only make payroll from their SVB deposit (and not next week's invoices, for example).
They had a ton of crypto reserves on deposit as well. This also would have been avoided if they engaged in basic hedging or variable timeframe bonds like every other business on the planet when faced with inflation and promises of rising interest rates. Buying and holding long term treasuries and mortgage-backed securities with no hedge as they tanked for over a year is incompetence.
Please. Do you mean to tell me that VC firms write a check for 10 million and then require all of it to sit in one uninsured savings account?
Yes.
And the taxpayer is supposed to backstop this stupidity?
I got nothin'
Depositors are never wiped out. We have a system for failed banks. The bank is seized. Insured deposits, up to $250K, are immediately available. The banks is sold or the bank assets are liquidated. Uninsured deposits are then repaid, to the extent possible. In this case, Yellen is ignoring the $250K limit and simply printing money to make billionaires whole.
Assuming no intervention, assuming things work as pre-determined by current regs and policies, then Silicon Valley is gutted, we lose a lot of tech companies that help keep us competitive in the world, and by mid-week, Regional Banks across the USA are failing.
Distinguish between depositors and bank executives and shareholders, and politicians. The latter set up an environment conducive for failure with COVID lockdowns, inflationary policies, and negligent regulation. The bank was negligent, invested in way too many long-term Treasuries and not recognizing the impact of the tightening tech investment climate. The depositors are victims. If we punish them, pretty much every business reacts by moving their funds to CitiBank, Chase, and BankOfAmeria because they are too big to fail.
And for Little Tech, waiting a year to make them whole is not an option. The climate for VC's to invest in small tech is dried up. Nobody is giving new lines of credit to little tech in 2023. They will just die.
Bail Out Bingo...Bingo!!!
I love the argument that "Too Big to Fail" now must become "None Too Small to Fail" (No individuals need apply) all in the name of striking a blow against BIG BAILOUT.
Compassion is always most shameless when it drunkenly blows capitalism.
$250K. Thems the rules.
I'm not sure VC's realize the contagion that will spread among the population on news of a bail out.
Definitely the Wrong Time.
Definitely the Wrong People.
The wind is blowing a completely different direction. Spitting on the little guy (again) is not going to be a great option here.
The one thing about COVID is that it made it completely obvious who the real essential workers are in this country--and surprise surprise it's not VCs. It turns out (surprise surprise) that the more money you make the less essential you are to society.
We live in a fake economy. All crypto shitcoins make perfect sense when you think of them as anti-capitalist performance art.
Our whole economy is really a shitty crypto coin. We are selling NFT's of pictures of fake money. Money as a measure of productivity is long dead.
The least productive sector of our society uses money and finance to extract the productive wealth of the people who do the actual work that society requires.
I'm not persuaded that we "lose" a lot of tech companies. That's like saying that in fall, everything dies and doesn't come back. Then comes winter. Then comes spring...
Avoiding punishment simply allows everyone to skate. I've lost everything....you learn some lessons from that. No one "bailed" me out. I just went down with the ship. Yes, I think it's ok to bail out the depositors but I would have been ok with all of them going down with the ship too. Why? Because those were the risks...in bold letters, on the accounts, "deposits insured up to $250k" - last time I tried to work with a bank they changed their mind, pointed to the loan documents and took the house. Same with my business. And a judge somewhere banged the gavel and said, "next?!" And a little while later, I'm living in a basement, paying rent month to month.
And then, I recovered. Maybe rent and mortgages in Silicon valley would return to humane levels...ok...never mind. That's not how it works in Fantasy land aka Silicon Valley. But...some humility is warranted here for the Masters of the Universe. Even Janet Y who just recently testified that the banking system is fine. Uh huh.
I doubt that the amount lost by the execs of SVB is much more than the bank's capital and unsecured loans. Paying out uninsured deposits now will keep a lot of employees in work, while not costing much.
I agree with Jim C that there is a real need to go after the execs for taking stupid risks, and not notifying the regulators of the bank's problems earlier, when they were not bad enough to prevent the bank being sold to a more competent group.
It won’t happen. An executive from Lehman Brothers was involved in this. As a CPA specializing in international tax I can lose my license for incompetence - be it misstatements in the tax provision on SEC statements or in tax/ regulatory filings to any government agency. Financial advisors - if FINRA finds they acted inappropriately at best they have stains on their licenses, at worst they lose it. Lawyers - incompetence gets them disbarred. Medical doctors - incompetence costs them their licenses. Even hair stylists lose their license if they get too many complaints for incompetence. For all heavy fines and clawbacks come with these findings. Yet banking executives, who are some of the top paid CEO’s on the planet, get a total pass to move on to the next one and do the same thing. In this case the CEO has made over $33million in the last couple of years. He’ll keep every penny while our fees and rates go up despite this guy being so incompetent he failed to implement standard short term bond ladders in the banks’ reserve investments. This need to protect the most powerful yet incompetent in society is how societies implode. We do not have a regimen worried about families or the working class or the middle class despite the rhetoric. The difference in how this administration treated a VC Silicon Valley bank versus the working class being abandoned to be poisoned in Ohio should make clear the priorities of this administration are ensuring the well being of high dollar donor class cronies and absolutely no one else.
Well put. Everything Matt et al have been reporting the past couple of years indicates a society on the brink of implosion. We are now past the point of no return.
And Biden is still yelling every day that the wealthy should pay their “fair share” … except when it comes to companies biden likes. Then Biden just lies and backtracks, once again.
It is an unfortunate fact of life ,that businesses in the US all hit rough times. Farmers in the 80s lost their farms at such high rates, singers held aid concerts for them. Auto workers, boat builders, oil drillers and every other industry in the country are sometimes gutted. Even teachers are sometimes laid off en mass. Workers file for unemployment. Owners go BK and begin again. We have a system for bank failures, but it was ignored so tax payers could bail out tech billionaires, HFs and VCs. Why are Silicon Valley workers due special treatment ? The last few years have produced more profit for Silicon Valley than ever before. Were those profits split with non investor taxpayers? The US will not survive private profits and nationalized losses.
It sounds like the feds are going to go what I suggest and try to keep depositors immediately liquid. I hope the bank, its staff, and its investors are bankrupted. But if the depositors are kept in purgatory for some time to comet, among the companies which will be illiquid are payroll processing companies, so for example, it could be that on Friday, coal miners in East Palestine or who knows which workers in the heartland, go home without a paycheck.
That simply is not true. That’s not their client base. There are zero branches of SVB in the state of Ohio. The reality of their client base being wealthy VC startups is why they lobbied congress in 2018 for less regulations arguing they are not systemically important. Now they want bailed out anyway.
BofA alone has gotten $15 billion in deposits since Friday. That means small banks that played by the rules are being gutted. Many will close in mass consolidation in the coming months. There isn’t enough money to cover their losses and most aren’t as irresponsible as SVB so their investors and shareholders will be gutted, and the shareholders they serve will lose access to local banking.
The FDIC has not temporarily raised FDIC insurance to stop this chaos. The administration protected their donor class darlings. By declaring two specialized and terribly managed banks SIBs they have set off a panic. And now, in bailing out banks for billionaires the ability to protect banking competition is crushed while the 5.48% return on deposits SVB gave their customers has been protected.
I’m sorry but when people buy the propaganda this is about “labor” and meeting payroll the only thing evident is the person buying the argument is completely ignorant about the reality of SVB. I deal with VCs everyday. I don’t expect most to understand SVBs anymore than I understand how to farm (which is to say not at all). It is however disappointing that so many who have no idea what they are talking about believe the bs about “depositors” at SVB from the same liars that assured them inflation was transitory and the Inflation Reduction Act would lower inflation and that Democrats are for the working person. It’s all 💩 shit and things will continue to tank in our country until people start using their own brain rather than getting persuaded by Silicon Valley that Silicon Valley deserves to play by a different set of rules.
You misread my comment. I did not claim Ohio businesses had deposits in SVB. I said that businesses all over the country, probably Ohio too, use payroll processing companies which do have deposits tied up in SVB, and because of that, payrolls in places like Ohio will also potentially be affected. You got quite irate for no good reason, which makes you pretty much like all the rest of us in this age of media.
Secondly, nobody, least of all I, want anything other than a complete wipe-out for the bank, its stockholders, its bondholders, its executives, and its employee stock options. You conflate them with depositors and then seem to imply they are equally to blame. Depositors trust professionals are trained and regulated, and in this case the trust was not warranted. I would urge Congress and the Administration to review and conduct oversight into this failure; however, as we have come to find, Congress and the Administration will ignore any problem that might cost them even a tiny bit of popularity, and the media will cover for them doing that.
The argument I've heard put forward is not that we should single SVB depositors out for special favor. The argument from Vivek Ramaswamy and others is just the opposite, that SVB depositors should be singled out for punishment. That all failing bank depositors in this current panic in all failing banks should be made whole EXCEPT SVB depositors. I simply don't agree with that in principle. I figure most banks, if you peel away the layers, have been managed by DEI idiots with DEI regulators more concerned about pronouns than asset risk management.
Finally, destroying depositors in any of these regional banks feeds the narrative that businesses are 'stupid' to have more than 250k in a Regional Bank. The logic is hard to refute that they should not all move to the Big Four banks, and that is essentially the Great Reset accomplished.
They have done NOTHING to protect depositors at the other regional and community banks around the country. NOTHING. Bank of America has gotten $15billion in deposits since Friday. Why? Rather than temporarily increase FDIC on the local and regional banks the FDIC used all their firepower to protect dispositors at an incompetent bank that only caters to Silicon Valley. They can't afford to protect everyone, so they chose the billionaire donor class. This action is crushing banking competition, not saving it.
You have no idea who the depositors are at this bank. How many VC subscription documents have you filled out? How many emails did you get last week from VCs making capital calls saying, "hold off - we'll send updated instructions"? How familiar are you with the vast difference between deposit rates between even SVB and First Republic which cater to similar crowds, much less the 0.18% you are getting on your bank deposits like 99.9% of the population. You think Roku deserved to be "bailed out" to protect all of their 5.48% return on their $460million? Stablecoin on their 5.48% on $3.2Billion? All your monologue shows is you are not remotely linked to the VC world, and you don't understand basic banking a treasury functions, but you are very moved by blatant propaganda from those that are.
Thank you for your attention to my comment. You are very smart. I am honored you took the time to address my ignorance.
I apologize for being overly harsh. The reality is that if this administration had any interest in protecting regional banks, they would have temporarily raised the FDIC cap to some amount between $1million and $10million to protect small and regional banks over the weekend. If their intent was to protect all depositors everywhere, they would have plainly said so and they did not. Instead, they protected even multibillion-dollar deposits at SVB and signature with no promises to protect other depositors. They may come out later today or this week and raise the FDIC limit claiming they are treating everyone equally, but it will only be because the money has already flooded the big 4 and people will be far too tired and uneasy to move it back.
It was predictable that failing to protect all depositors everywhere at the same elevated level would cause runs on small and regional banks. If the administration had any interest in protecting all depositors of small and regional banks, they would have plainly communicated that before Sunday. Fully protecting SVB and Signature depositors came at the known expense of being unable to protect everyone else. Thus far my husband and I personally benefit from the events of the past week, and I still think it's wrong to treat people so unequally.
You lost me at silicon valley, worth around 14 trillion, being gutted because SVB, with a 40billion market cap, fails. Can you please not gloss over that and go through your reasoning in detail?
Sure. Of the 14 trillion, 13 or so is owned by Google, Meta, Apple, and a handful of other giagantic companies who hold their assets in banks that are too big to fail. Of the other trillion, a good chunk of it is in SVB. the 40 billion market cap is a market cap. The total deposits, at least before the run, were a bit over a quarter trillion.
This is one of the more educated blogs you can find these days. And even here, the sounding of the angry bellow horn is loud and clear. I hope we can differentiate between depositors and the bank; however, the cynic in me suggests that probably won't happen. Particularly when the ultimate goal of the Democrats - to collapse the free-market economy into a fascist economy with just a few large compliant banks - perfectly aligns with the bellowing horn of the populists.
OK, so we've established then that Silicon Valley will not be destroyed by SVB collapsing, right? Actually SVB had 211 billion in deposits with 150billion uninsured. So now we've gone down from 14 trillion to 1 trillion to a quarter trillion and now down to 150 billion.
(source: https://www.zerohedge.com/markets/record-bank-run-drained-quarter-or-42-billion-svbs-deposits-hours-leaving-it-negative-1bn)
And those depositors with 150billion would have eventually gotten most of their money back after all the assets were sold off. But short term let's say a few startups who were stupid and banked exclusively with one bank willl miss payroll for a while. We bail out the banks again system just for that? Remember, your initial justification for bailouts was to prevent silicon valley from imploding and to preserve our technological lead in the interest of national security.
I never called for a bailout. I called to make the depositors liquid immediately. I have no interest in bailing out SVB. I think you underestimate the damage to the economy by letting a good chunk of our start-ups fail, but that is a matter of opinion. You might be interested in listening to Saturday's All-In Podcast.
Calling a business 'stupid' for keeping more than 250k in a regional bank is of course something businesses will take into account. Their current path to stop being 'stupid' is to abandon Regional Banks and head for Chase. Another big Regional Bank failed Monday morning. The only reason we have not had more failures today, so far, is that there has been some intervention by the Feds.
Sorry, but we were told in 2008 that the world would end if we did not bail out the banks. Let the rich lose their goddamn money for once and maybe fiduciary responsibility will come back in vogue. Socializing losses indefinitely is not sustainable. No bailouts. Let the chips fall where they may and after some pain the economy will be stronger for it.
Making depositors liquid over $250K, is a bailout. It does not matter what you call it. Under the FDIC, everyone gets up to $250K immediately. Uninsured deposits are returned, to the extent possible, after the sale of the bank or bank assets. Congress didn't pass an exception for Biden's special people in the SV.
That’s baloney. The reason we are having issues is the Feds waisted their liquidity on SVB so they can’t up FDIC insurance to stop a run on small and regional banks. You have no idea what you are talk h about. You clearly don’t actually deal with these banks.
You absolutely called for a bailout. 100%. Who the he’ll do you think is going to pay for SVBs recklessness?
Yes my understanding is that the Central Banking system is very interested in the high net bankers of SVB, and that they will be banking in one of the big 6 banks now. Its beginning to look like the Cen
tral Banks are culling the small local banks and pretty soon there will oonly be the big 6. Say goodby to the regional, and local banks...
"competitive in the world"
Ah yes, the great world competition for global dominance! Climb to the top (by any means necessary) or be mere flotsam in the wake of the mighty!
I agree, this is exactly what is happening.
There are something like 40,000 depositors and I doubt most of them are billionaires--a lot of small and medium sized businesses using the bank primarily as a checking account, maybe a line of credit for business cash-flow purposes. and if they are limited to $250K FDIC insurance a lot of them will be wiped out and their employees and vendors will not be paid.
And I doubt if many billionaires have a large part of their holdings in bank CDs, anyway. I mean, really!!
Yes, there is no literal "wipe out," but if you are running a business with a monthly churn of a couple of million dollars, $250K doesn't do much. to keep you afloat.
This is a difficult problem, if depositors are not made whole regional banks will all fail and people and businesses will only do business with the huge, systemically important (too big to fail) banks, and personally, I don't want to see banking concentrated in a small oligopoly.
There is no perfect answer, but something along the lines of more generous FDIC coverage coupled with limitations on what banks can invest in (i.e., not highly speculative, volatile stuff like mortgage backed securities) would be a step in the right direction.
And, some prosecutions and clawbacks, both as simple justice and "pour encourager les autres," as Voltaire described the execution of Admiral Byng as an example to other admirals.
And that brings us to the essence of modern banking. The banker makes a bet. If the bet wins, the banker gets rich. If the bet loses, the taxpayers are stuck with another bailout.
Who do you think owns those small and medium sized businesses? VCs, hedge funds and billionaires Have you met many angel investors that are Nebraska widows and orphans? FDIC limits exist so everyone gets something. The smartest people in the world, did not understand FDIC insurance regulations, that most kids learn in high school General Business class? Of course they did, but they also knew the rules would never apply to them. This was simply a pay off to Dem donors. People miss paychecks, other funding is sourced. Life goes on. Tech stocks dropped more than 70% in 2001. The industry didn't end. The US cannot charge banks premiums high enough to protect every dime banked in the US. Everyone in DC knows that. It is why FDIC limits existed in the first place.
Half of me is sympathetic to small businesses and half of me isn't. I mean, there's nothing stopping them from having multiple bank accounts. Also, deep pocketed account holders will hide behind this rationale to garner public support for a bailout, and it is precisely those deep pocketed entities which will benefit the most from a bailout. I would support keeping deposits liquid only for account holders whose net worth is less than something like 10 million or so.
SVB was paying 5.48% on Deposits. I did not know this until yesterday, but now I remain more convinced the depositors don’t deserve a bail-out.The rest of us, getting well under a 1% on deposits at responsible banks that responsibly hedged their rate risk, are now footing the bill for the downside risks of deposits with a 5.48% return. That is wrong and is nothing more than reallocation of wealth to rich Silicon Valley tech companies.
Was that 5.48% on 60 month CDs or checking accounts? If on the former, given what the Fed has been doing, not a big deal, 2yr Treasury Notes have been around 4.5%. If on demand deposits then yeah, that is a real problem, tho I still worry about employees and vendors getting stiffed.
I am encouraged to see people suing these banks and their executives, and hope to see aggressive action from the regulators. The people responsible need to suffer real harm. Maybe some depositors deserve a haircut. But the employees and suppliers to those depositors not being paid for work already done or materials or services already provided? I don’t see that.
The 5.48% was on deposits and money markets. Even if it had been CD's, it is still WAY outside of the average rate for 5-year CDs. Short term rates have skyrocketed on bank CDs and even those don't surpass 5% today. The average rate in February for a 5-year CD was actually less than the treasury rate at 1.51% (see below for charts). I can't find a single five-year CD offering a rate over 5%.
The depositors were never going to be wiped out. It was always going to be a haircut. They were going to take a haircut in exchange for their return based on higher risk return rate of $5.48% on idle cash that wasn't volatile like stocks nor locked up. The deal was in return they risk a haircut in the case of a failure. Even if they weren't getting the crazy return, it is still the responsibility of businesses to manage their cash, but finding out about the returns is certainly salt in the wounds. Instead, these entities get to face zero consequences for poorly managing their businesses' cash and we are footing the bill.
I'm sorry but this "poor workers" and "poor depositors" is nothing but propaganda that only works because very few people understand just how unique and wealthy the clientele of this particular bank actually is. Don't buy the sob story. There is a reason they had such a huge rate of uninsured deposits - they were offering enormous returns and catered to an extremely wealthy clientele.
Then let's look at basic treasury function of businesses (otherwise known as cash management). Its banking 101 that you don't leave uninvested cash over FDIC unless there is an immediate business need (unless you are a VC funded startup to whom the rules don't apparently apply). Mid-month payroll applied to those businesses with payroll at least 24 times per year. That means impacted payroll must be over $6,000,000/ year. ($250,000 x 24). I'm sorry but these aren't small, struggling businesses being impacted. At the very least these are mid-sized businesses or small businesses with enormously wealthy employees. And again, the depositors were never ever going to be "wiped out." That's pure propaganda. They were going to receive the full $250K plus 50% of anything over that amount this week. Yes, it would be a few weeks or months for the rest, but they still would only take a 10%-15% haircut, and only on the uninsured portion of the deposits.
If a community of people on the NC coast has too little insurance on their homes, do you think FEMA, with its per household disaster relief limits of $250,000, is going to come spend millions per household to make up for lack of insurance rebuilding mega-mansions on the outer banks or Figure 8? Side note, I have spent a lot of time at Figure 8, and, contrary to the TV show, there is not "cut" on the island, there is no golf course on the island, you go over a drawbridge to reach the island as there is no ferry, and it's not actually in the outer banks it's on the barrier islands off the coast of Wilmington. There is a yacht club on the island, and beautiful wide sandy beaches with very few people. The reality of SVB is as different as what is being sold to the public as the depiction of Figure 8 on the TV show v reality. Should taxpayers be on the hook over for the repair of multi-million dollars homes the owners failed to properly insure? What's the difference with cash? Why should the losses be socialized above a reasonable minimum of cash for the failure of businesses the rest of us had absolutely nothing to do with?
https://ycharts.com/indicators/us_5year_cd_rate
Well said and well written. Nice work.
Depositors assume risk. If they don't, whose risk do you think it should be?
Depositors, yes, but their employees? And suppliers? and the suppliers' suppliers? Is it reasonable to have the supplier to a supplier to a supplier vet the bank that the final customer uses? All the banks that all its customers use?
This is a fundamental problem with fractional reserve banking and won't go away, but we can make things better or worse. If I had my way we would go back to separating deposit-taking banks from investment banks, with the former tightly regulated almost like public utilities, and with robust insurance, and the latter only lightly regulated to address fraud, but no insurance at all, by law.
I would also reconsider mark-to-market, a cure for a real problem (misleading, even fraudulent accounting for assets) but worse than the disease. Mark-to-market is misleading in all cases other than imminent liquidation... the bonds will pay the income stream and repay principal as guaranteed, regardless of what interest rate swings may do to their present value. This happened in 2007-08 and again last week---M2M creates an appearance of insolvency when there is none, and that sets off a panic. I would not go back to the previous system, but M2M has created catastrophes. We need a better way.
We seem to have forgotten what Walter Bagehot knew in the 1870s---when a bank is in trouble, you should investigate its assets and liabilities. If it is solvent but temporarily illiquid, loan it what it needs to survive, at a high rate of interest, with the interest being incentive to not get into that sort of situation in the future.. If it is truly insolvent, let it die.
It would have been better to take a couple of days to go over the books and figure out whether the bank was worth saving, or not, and if not, to figure out to what extent liquidation would cover depositors. It may be that even in liquidation the uninsured depositors would have seen 80% or more in a couple of weeks, in which case I would be much more amenable to no govt intervention beyond the FDIC insurance limit and overseeing an orderly shut-down and liquidation.
I cannot know for sure, but I suspect that SVB was neither illiquid nor really insolvent at the end of February, but the M2M value of its assets, reduced more than they expected due to the Fed raising interest rates faster than they expected, to fight inflation, created the appearance of possible insolvency, which led to a run. At that point, the panic has a life of its own.
Why the only way we can fight price increases is to trash the economy and destroy jobs and businesses, is a question for another day.
Oh hell! Not the mortgage-backed securities again. Thanks for the added info. Incompetence is right.
Right. I as a simple peasant know that mortgage-backed securities were Musical Chairs. The last person holding them gets screwed – until the bailout.
America's best and brightest...from Sand Hill Rd even. I've been to Sand Hill Rd. Pitched VCs on Sand Hill Rd. They are the cream of the crop. The top layer. The creme de la creme. Is it hubris or...what was/is this? I mean, the Chief Investment Officer went to Harvard, right?
The modern credential (Ivy League degree) seems to be worth about as much as a medieval Church Indulgence.
Indulgences? they call them carbon credits now
It's sad that Harvard and the other Ivys still show up so high in national and world rankings. Then again, maybe it's not so surprising since the people doing the ranking are Ivy grads themselves.
Not when I was there lol.
His incompetence may explain why SVB's CEO only got $3.5 million as a bonus hours before the bank was seized.