I would like to offload responsibility and consequences to the individual parties. Regulated industries have a cosy relationship with the state and are more likely to receive bailouts and carve out protective moats for their business. If there is a failure in risk management, then the investors (and yes depositors as well) should bare the consequences. Investors are going to be a lot better than regulators to enforce good practices. But you only get there once you stop bailing out every company when things go wrong
I kind of disagree,although it'll all be on case by case basis.
First, in my mind, the original principle of regulation IS the individuals saying "well, THAT sucked... Let's not do THAT again". Otherwise everybody has to make a mistake for themselves and that's inefficient. We need to learn as a society and across generations.
Second, modern life is complex and we need to divide and conquer. Most of us live in Interconnected society strongly dependent on competent work by others. There are some things we should take for granted. In this particular case, if I put basic cash into a basic deposit account that's not designed to give me high yield or differentiated exposure or whatever, then I want regulations and a system to make it so.
There are 10,000% too many regulations that are insufficiently examined and overly prescriptive out there.
But I don't agree that depositors should always pay cost because we are all depositors and we can't all always manage that risk individually and I think we as society mostly said, this is a risk that pertains to all and we should manage it holistically as such.
> In this particular case, if I put basic cash into a basic deposit account that's not designed to give me high yield or differentiated exposure or whatever, then I want regulations and a system to make it so.
If all a company has to do is check the boxes of regulators (which they're good at) and now there is a guarantee that nothing else needs to be done since the bailout is all but explicit. You don't care as a customer. The business doesn't care since it's following the rules. And every decade or so we have a bailout.
Remember that these industries are heavily regulated. And those regulations are always insufficient. Triple A CDO-squared were treated to be as safe as cash according to regulations when they ended up being worth closer to 30 cents to the dollar
I agree. Bailouts are bad because they lead people to ignore risk, especially people who should know better, like investors and people with > $250,000 in a single account. Furthermore, we seem to bail out wealthy parties much more regularly than poor parties... Where is the bailout or simple assistance for people who cannot afford basic necessities or housing due to overall economic conditions? But poor Roku may get a half billion bailout.
A risk officer was missing for almost a year. Would be interesting to know what reasons prompted the departure of the previous Chief Risk Officer. Disagreement with the bank direction on risk?
I really enjoyed Sack's and Ackman's Twitter meltdowns demanding bailout from government while refusing to call it bailout, because government bad, m'kay. Orwell would be proud about such doublethink.
Don’t stop there. What happens after they fail? A flight to perceived strength. The top of the market would be the only place where people would feel safe parking their funds. Think Wells Fargo, Goldman, USBank, etc.
Now consider which would be the better buy. Twitter for $40 something billion or bail all these investors out for similar money and own the startup banking business almost entirely. I know what id do if I was sitting on billions looking for capital returns ala Apple.
(Apple could outright buy this market, use the returns from banking to issue monthly/quarterly dividends, and still have hundreds of billions in cash. They could then buy some significant portion of the emerging launch market. Wait a few years to mature. Then declare their checkmate on the global economy. Edit-correction, they’ve done buybacks so they’d have to issue some stocks or raise funds. Point remains.)
I didn't say the US should bail the bank out. The USG should act to ensure the depositors of the bank are made whole because otherwise the market would get even more concentrated. The quip about buying the startup banking sector underscores the 'cheapness' of the purchase for any bank or entrant. All the USG need do is act as a matchmaker and maybe some kind of clearing house.
I assume your views in this case are consistent with the views you expressed in our prior discussion related to FTX. That is, it would have been your responsibility to do due diligence on the bank and properly ensure that your assets are safeguarded, and if you had failed to take such precautions, then the fault would have been yours and yours only. As a result, you would not whine on HackerNews, nor expect sympathy or compensation. Fair?
For depositors like in this case, a little bit complex. What about possible contagion? Where will the contagion be stopped? Or just let it destroy the world if possible.
> nor expect sympathy or compensation
Maybe compensation like Bernie-Madoff style, remove all the profits of other persons. But this works fine by me because it will probably destroy crypto.
It seems to me it's a decision that trades off the risk of moral hazard for risk of contagion. To me, the rules were crystal clear -- if you have more than $250k in your account, that excess cash should be seen as "at risk".
Workarounds include depositing money in a brokerage account (and buying risk-free t-bills) or spreading it out across multiple bank accounts. Smart and risk-aware people did that, dumb people didn't (or alternatively, through specific rules that Silicon Valley Bank set, were prevented from taking their money elsewhere).
But as always, system tends to take decisions that increase moral hazards as time goes on. Swift and easy solution in the moment, but bad in the long run.
(Probably not productive to bring crypto into this discussion in my view.)
Which contagion though? The average person has between $5-6k in their bank accounts. There was certainly lots of talk on Twitter about this thing spreading -- and it's very possible that it might have -- but it was not a given. The loudest arguments for contagion came from the same people who had the biggest incentives to see SVB "bailed out". Hardly a coincidence. Just look at how vocal otherwise libertarian David Sachs was.
I don't think there is an official definition of bagholder as far as I'm aware.
I felt really stupid and angry after the collapse of FTX as you know, and truthfully, I could probably have used some professional therapy at the time. But at this point, I'm trying to look forward instead, and to me that is likely having an equally good (and positive) effect on my mental health as therapy would have had. Hopefully you can do the same as you search for the next chapter. Best of luck.
Listened to the latest All-In episode and have been reading some Twitter threads, heard everything from this is going to wipe out 10 years of capitalist progress to people indicating they never heard about Held to Maturity accounting(i.e a CFA level 1 topic) to predicting a bank run on Monday if no bail out to suggesting that government would double their money if they bailed these companies out a la TARP.
I think it’s really important to distinguish between bailing out the people who invested in the bank, and the people who have deposits at the bank. Those are not the same thing at all we should have a system where people can put their money safely into regulated banks, and expect to get all of that money back.
We should also have a system, the same system, where investment is a risk. But parking your money in a bank account should not be a risky endeavor.
> parking your money in a bank account should not be a risky endeavor
Why? It is. Transparently. There are measures of how risky different banks are.
For ordinary people, the risks should be insulated. And they are. Deposits are insured. Unemployment is insured. If you have more than $250k in a non-investment grade bank, you should have a strategy for mitigating that risk. If you have tens of millions of dollars of cash, you should have a treasury function.
because the fed is targeting a 2% inflation rate. Laissez faire policy led to the Great Depression. The lesson there was the downs absolutely do not need to resolve on their own without government involvement and LF was abandoned. The reforms from it significantly contributed to the growth and stability from thereon.
If you want no risk you will have to pay an institution to handle all the logistics of moving your money around, not have them pay you for the privilege.
The fact that SVB pays depositors should have been an indication that there was risk.
The government already solved this with the FDIC deposit insurance, and it is funded by the banks.
"...The FDIC is not supported by public funds; member banks' insurance dues are its primary source of funding. When dues and the proceeds of bank liquidations are insufficient, it can borrow from the federal government, or issue debt through the Federal Financing Bank on terms that the bank decides." - https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp...
The federal government should provide electronic money accounts with capabilities to perform transfers as infrastructure. Perhaps this will cause some richer people to politically support this.
In another thread, someone mentioned that First Republic did offer special conditions for leaving large cash deposits with them. I assume it's similar in this case, isn't it?
Essentially, you buy e.g. lower rates on a personal loan by keeping your company's cash with them, far beyond the insured amount. It's not just "I could've chosen any bank, I just wanted my money securely stashed somewhere", it's "I put my money here, knowing it's not insured beyond this amount, but I get favorable rates in return". The lines between deposit and investment get really blurry there.
It's called money. In the US, elections are largery determined by who could spent the most money. Therefore elected officials are incentivised to keep rich people close. Whenever rich people's power is threatened by a political initiative, lobbying and grey zone bribes are used to maintain the status quo.
Capitalism leads to the concentration of wealth that allows these incentives to appear.
Edit: How I enjoy the salty tears of people who drive by downvote without a rebuttal out of cognitive dissonance. Delicious.
> In the US, elections are largery determined by who could spent the most money.
They really aren't. The vast majority of elections are determined by the partisan make-up of the district in question.
For the most part, you seem to have inverted causation. It looks like more popular candidates attract more money, not that candidates with more money end up being more popular.
I added this to my reading list, looks interesting, thanks.
Though I'm very opposed in general to the idea that causation is one sided here.
I can easily see it as a cycle. Popular candidates get more money, can buy more attention which makes them more popular, get more money, buy even more attention, and so on.
There's also the gnarly topic of money and the big media which is involved at every step here as well.
It's an extremely complicated topic with many moving parts interacting in all sorts of interesting ways.
I’m sorry but you’re going to need to be more specific. The U.S. isn’t the only country that uses money.
You say capitalism allows for the concentration of power. You’ll need to explain how other systems of government get around concentrating power in a game theory stable way.
Your argument, as written, boils down to “If people didn’t have money they couldn’t use money to bribe politicians and therefore politicians would be free from influence.” And you use that to lay the blame at capitalism’s feet. This is likely not what you think - but it’s how I’ve read what you wrote.
> who drive by downvote without a rebuttal
We don’t comment on downvotes here. That’ll get you more downvotes.
> How I enjoy the salty tears of people
This isn’t Reddit. We don’t communicate this way here.
Again, false dichotomies. I only said capitalism allows for concentration of wealth, and therefore power. I said nothing about other systems.
And I spoke about the US specifically because capitalism is implemented differently in different countries. More on this in my responses to your siblings.
It's definitely a matter of the way you've read my post. You're inferring a lot of stuff I didn't say, which doesn't logically follow from what I did say.
As for the edit, I'm just testing a psychological pet theory of mine.
You are railing against democracy, voting and election campaigns. You're rightly pointing out flaws in them. The solutions that have been proposed for those flaws are called small government.
The same corruption happens in every other system including socialism but even if that system abolishes money the corruption would be done through power, coercion, and influence.
Again with the false dichotomies. You should get that checked out.
I am not railing against democracy. I am saying democracy is being undermined by certain unchecked aspects of capitalism, specifically in the US. In many European countries, this is much less of a problem because campaign finance is very strictly regulated. And in general the solution employed in Europe has been more financial regulation, not a small state. And it's been highly effective.
And yes, socialist countries can also be corrupt, and definitely have been. I never said otherwise. Saying X about capitalism is not automatically saying !X about socialism.
Similarly, saying that socialism can also harbour corruption is not equivalent to saying capitalism has nothing to do with corruption in capitalist countries.
I am saying it concentrates wealth yes, and that this leads to corruption when the relationship between wealth and power isn't sufficiently tamed through various regulations.
You are assuming there is a magical threshold for "bribing" wealth that capitalism enables.
Second point, wealth is by definition a creature of rarity. The same is true of influence. Everyone has some degree of influence over others but useful influence is what one person has that others don't. So you can't really evenly distribute wealth over any meaningful time period. You can certainly eliminate mechanisms for relating it to other uses but then you've destroyed it.
The problem you are trying to articulate has been studied. It is actually the concentration of power that is the problem. Influence, wealth, coercion are traded by some to those that hold power in order to direct it in a way that they want -- this is called corruption.
Both capitalism and socialism are economic systems. When combined with democracy they can enable corruption because it is the concentration of power in the hands of the leaders that is the critical element -- not what is used to trade for it.
When you're looking at European socialist countries you'll find the successful ones are either low population or the power int the hands of the leaders is fairly restricted because of societal structures. Meaning the instrument isn't there. Ask soon as you scale it up it rots a lot faster than ay capitalist society.
In China they use debt-free newly printed money to recapitalize banks. The reason this doesn't create moral hazard is lending is very tightly controlled and subject to regular decrees about who they can lend to and for what.
Yes no moral hazard. Sure. That’s why China has the most distorted property market in the world creating ghost cities. Are we actually at the point where Chinese absurd practices are talked about as something to emulate? What did you mean by this comment?
The creation of money should be a government function though. The weird hybrid system we have where we privatize the gains and socialize the loses is what causes these kinds of disruptions. With how much control China exercises over the banks, it is essentially almost a government function. I would be for getting rid of bank money creation. It just makes too many problems and creates the boom bust cycle.
Or how about we remove governments from money business and move to private currency. It’s looking more and more likely we are headed in that direction.
Only the official loans. The problem is China is calculated to have at least 40% of the lending, via the shadow banking system with massive risk of contagion. And yes, it's true the Chinese administration has been trying to curb this risk.
Absolutely, as an European I am constantly amazed how deeply the 'socialism bad' mantra is embedded in the American psyche, how can you blame even the most text book failure of capitalism on socialism?
Perhaps the problem is the people can only imagine either capitalism or the Soviet Union and nothing in between. Guess what, you can have a mix where it makes sense. There's no need to obsessively pull out every socialism trope as if one were ChatGPT at every hint of an extremely mild criticism of capitalism.
Feedback is an important mechanism for the gradual improvement of any system.
> Even very poor Americans who would literally have a much higher standard of living under socialism are taught to despise it.
Are you sure about that? The very poorest Americans likely have higher living standards than you think. Homelessness due to mental illness or drug abuse is a separate population, I mean working poor.
What socialist system would you like to hold up as an example?
The perception disconnect between the US and the rest of the world is that examples of “socialism” are dramatically different. Is socialism defined by the Cuba/Venezuelan example or Scandinavia/Nordic examples? I think what people see as socialism in the US is more related to their understanding of the term from the Cuba/Venezuelan flavor than Scandinavian flavor.
Americans have a distaste because they see people who prefer attempting a dangerous escape from those socialist countries to living in them.
> Even very poor Americans who would literally have a much higher standard of living under socialism are taught to despise it.
Pretty much the same for people living in oppressed countries. They would benefit from at least some liberties but are taught to despise them (and the west for having them).
I doubt it, I have met many people from such countries and far from hating the West for having liberties, they despite that the West wraps their resource extraction, geopolitical interests and exploitation as delivering liberties for domestic consumption.
The West has directly supported the overthrow of a fair number of rather progressive leaders, at least by world scale.
"And the west for having them" - nope. Thats a propaganda line by the US goverment, and lately by the EU right wingers. There are much better reasons to despise the West than the percieved "freedom" they have. Like their actual acts of genocides and exploitation.
I am curious about which part of Europe you are from (as there is no European nation). Because people that have the most to say about socialism are those whose only contact with it was theoretical or through books which has nothing to do with reality, as history teaches us.
I grew up in Poland and you will take 'socialism bad' banner from my cold, dead hands.
I am your neighbor and a fellow Central/Eastern European. With all due respect but I don't really view Poland as any sort of democratic, progressive place I would like to live in. If it's socialism or the sort of uber conservative, extremely religious politics and society that make Polish women escape into the UK just so they can escape their controlling parents, (personally experienced this story many times), then I don't really take current sentiments coming from there all that seriously and I'd rather take the first option.
But in reality I am for a mix of both, but 'socialism bad' is just an overly simplistic, propaganda loaded agenda that does nothing to push your society towards a more balanced track than it is on now.
I don't want to go into this kind of discussion but even if Poland is uber conservative and extremely religious (which I don't agree with), it doesn't change the fact that socialism is an antiutopia, a fable.
If you get a chance, please ask these women what they think about it (if they are old enough to remember).
I have family members who lived through it, (not in Poland, but next door), what they admit seems like a mixed bag, be it of course an authoritarian one, but a lot more mixed that what I initially assumed; for one the political system is much more open and free than under socialism back then, but they also say it's nowhere near as free as they imagined it would be.
They say the selection and abundance of food and products is much greater now, but that the quality of food is lower.
They're surprised when I tell them that I sometimes have to work during the weekend and oftentimes extra hours during the week as they assumed this only happens under socialism. They've also enjoyed more regular retreats that I do.
They say that the general quality of education seemed higher, excluding the propaganda.
They didn't have to pay tens of thousands for their education and be in debt as soon as they're adults.
They also admit that they can't really imagine buying and actually owning a house during their lifetimes with current market prices and admit that they didn't really have to think that much about such basic sensitivities back then.
But I am not in favor of that system, because as you may not be aware there are many more ways to implement certain socialist policies without eliminating the benefits of democracy and keeping the market free where it makes sense.
Capitalism makes sense in some places, it just doesn't make sense everywhere.
Categorically this should not be capitalism and is not actually in my understanding. It is the opposite of the definition, or at least the original definition. It is regulatory capture by wealthy parties that force the government to protect their wealth and then use capitalism to ensure that the government does not materially improve the lot of the non wealthy.
How is socializing losses a part of capitalism? Supposedly free markets is a part of capitalism, but if you don't let things fail, how can you call it a free market?
Because its those who call for the goverment for a bailout, because otherwise it will hurt the general public -> many failing business -> increasing unemployment
There’s capitalism in the textbook and capitalism as practiced by capitalists. Free markets are a great idea and all, but I’ve never met a capitalist who actually supported free markets.
The natural state of capitalism trends toward monopolies, regulatory capture, cronyism, price fixing, wage theft, information asymmetry, and bailouts.
Sure, I haven't said otherwise. But if you imagine a capitalistic system, isn't free markets a part of it? And what other economic systems than capitalism do you imagine having free markets? Hence the "is a part of" part of my comment.
This comment here is evidence that the USA is no longer a capitalist country. Socialism is so ingrained that people can't tell anymore where capitalism ends and socialism beings.
Socialism by definition is having a centralized authority stepping in to regulate and control what goes on, for the "good of the people". In a free market capitalistic society, if you lose your money on a private enterprise, then you have to deal with it yourself, no one is coming for your rescue.
The government should “rescue” people who have money in a failing bank. Banking should not be an adventure people seem to be conflating the people who invested in SVB and the people and businesses, who had money there, because they have to move money around or store money to run their businesses or their lives.
Having more money than the FDIC insures is not very hard for any business larger than a few people.
Government should absolutely be in the business of protecting the people storing their money in the bank.
People investing in a bank as a security should be responsible for that risk, yes, because they’ll be getting the profits if successful.
The banks can maintain a central body with insurance to bail out the failed ones which is essentially what FDIC is. That part isn't the government stepping in.
The step in part is what VCs and corps are asking for which is to be made whole. In reality they should have realized -- as sophisticated actors -- that large amounts of money are always at risk. Even if you put them in a bank because it is not a vault. They're investments that you just don't have control over.
If the wish was to secure their millions to billions of capitals it should have been invested by them in some sort of instrument. This is what any treasury in a large corp already does. So it isn't unknown knowledge.
It would be as if they stored their most critical IP in a cloud server. It went down and now they want to be made whole.
You can't arbitrate away large financial risk anymore than you can technical risk. So you must understand it when you're dealing with substantial amounts of it.
FDICs 250K limit works fine for unsophisticated retail customers.
You realize that the "sophisticated actors" here are by and large employers, right? Depending on how much and how fast they get their money back, it isn't just those folks who are going to pay the price. It's the people employed by them who will suffer first, and their spouses and kids (assuming they have them).
This "they should have known better" narrative is garbage. Companies have no choice but to park money in amounts greater than $250K. Some of the companies with SVB (as I understand it) were required to bank with them. There's also the fact that SVB might well have been fine if not for the Thiel-induced run on the bank.
But even if I bought into the idea that primary depositors were at fault, I'm not keen to see all the collateral damage that's going to come out of this and hit workers and their families.
Socialism, by definition, is the public ownership of the means of production. Governmental regulation certainly could be a mechanism for that, but unless I am misinformed, it is not the sole mechanism available.
That should have been clear already when there were the stimulus checks. Type of socialist activity that wouldn't fly in many of the so called socialist countries...
I sold my time to a company owned by capitalists. The money I made was taxed by the government. The government then realized I needed some of that money back and they gave it to me in a stimulus check. I still work at a company owned by capitalists.
The above (true) story happened under a capitalist system, and has nothing at all to do with socialism.
A few tax refunds in a national crisis is not socialism. It would have been socialism if the US government nationalized failing companies (instead of giving trillions in handouts), and transferred ownership of those to the people in some form.
Yes, because in America, both Joe Biden and Bernie Sanders are labeled “socialists” even though they are on opposite ends of the political left. Joe Biden doesn’t even support Medicare for All, the most socialist healthcare idea we have; instead, he pushes the ACA, which was originally a Federalist Society (read conservative capitalists) healthcare plan implemented by a Republican governor in Massachusetts. But somehow Joe Biden is a “socialist”.
https://news.ycombinator.com/item?id=35115963
(311 points/11 hours ago/153 comments)