Any article, tweet, or comment section on this issue is rife with willfull ignorance of basic banking practices, chief among this being the strawman multiple bank accounts.
The FDIC limit is not just some technicality that businesses abuse with many accounts, it is a recognition of that fact that banks like SVB, which hold large deposits from a small number of highly correlated depositors, are fundamentally more risky than banks with a large number of smaller uncorrelated depositors. Sweeping large deposits across banks and properly investing in treasuries reduces systemic risk and prevents bank runs in the first place. The de facto removal of FDIC caps defeats this diversification and protection.
The current dollar value of the cap also makes sense. Unlike what plenty people are trying to claim, there is no amount of money for which that current system is unsuitable. Deposit sweep accounts cover up to $3M (and diversify across banks, exactly the point of FDIC limits). Money market funds provide short-term treasury exposure above that, and businesses with many millions liquid should absolutely be expected to invest in treasuries. If Bogleheads can do it in their retirement accounts why can't $10M+ startups?
Maybe the SVB depositor bailout was necessary in this case to prevent broader panic, but it sets a grim precedent for depositor behavior that ultimately makes the system more brittle and reliant on government handouts (which despite rhetoric to the contrary, will be paid for by the taxpayer/bank account holder).
> The current dollar value of the cap also makes sense.
How can a static number make sense given the existence of inflation? We've been told for the last year that inflation is "out of control," and yet in the case of the FDIC cap, $250K in 2012 dollars makes the same amount of sense as in 2023 dollars? To save anyone the work, $250K in 2012 is equivalent to $350K in today's dollars, so, a change of $100K, or 40%. Did TARP, which is repeatedly criticized for being passed too hastily, and also included this $250K cap, have secret future knowledge of interest rates and specifically intend for the cap to reduce in value by 40% over the following 10 years? The FDIC limit started at $2,500 in 1966 and has been increased several times. Have we magically arrived at the final number now?
> Deposit sweep accounts cover up to $3M (and diversify across banks, exactly the point of FDIC limits).
These numbers remain arbitrary. Your argument is only that there needs to exist an FDIC limit, not this particular limit. Why is $3M the right amount for sweep accounts? Saying "you can combine accounts to stack FDIC limits like video game power buffs" is true regardless of the base FDIC limit, it doesn't explain why this limit is correct, too high or too low. Look, it works for $50,000 too: "You can have deposit sweep accounts that cover up to $600K. Money market funds provide short term-term treasury bonds above that". And hey, it works for $500K: "You can have deposit sweep accounts that cover up to $6M. Money market funds provide short term-term treasury bonds above that". See, the surrounding multiplier system has nothing to do with justifying the base number. It seems much more likely that a number that was set 10 years ago when money was worth 40% more, and that has a history of needing to be raised, probably doesn't make sense today and needs another update.
> The FDIC limit is not just some technicality that businesses abuse with many accounts, it is a recognition of that fact that banks like SVB, which hold large deposits from a small number of highly correlated depositors, are fundamentally more risky than banks with a large number of smaller uncorrelated depositors. Sweeping large deposits across banks and properly investing in treasuries reduces systemic risk and prevents bank runs in the first place. The de facto removal of FDIC caps defeats this diversification and protection.
If it is so critical to the integrity of the system, then why aren't accounts required by law to be sweeps above the FDIC limit, and not allowed past the "natural sweep multiplier FDIC limit" at all? You just said it yourself: the purpose is to reduce systemic risk. Then let's actually reduce it instead of "planting the seeds of reducing it if everyone gets sophisticated enough," and then getting angry when they fail to do it. The current system is like purposefully trying to create a tragedy of the commons, where individual mistakes are rarely very rarely punished but together contribute to bringing down the entire system. Allowing below FDIC limit accounts seems to be a weird landmine for both the depositor doing it, and for the larger system it operates in. It's the worst of both worlds. It's like when an API doesn't work, and instead of fixing the API, the author updates the documentation to include a workaround and is baffled why people keep running into this problem. Don't they read the docs? These uses are supposedly supposedly so smart but can't be bothered to find this simple workaround buried in my documentation?
>The federal government’s action is, in my estimation, the right thing to do for this moment in time. There will, though, be long-term consequences for fundamentally changing the nature of a bank: remember, depositors are a bank’s creditors, who are compensated for lending money to the bank; if there is no risk in lending that money, why should depositors make anything? Banks, meanwhile, are now motivated to pursue even riskier strategies, knowing that depositors will be safe.
I don't believe this is a binary issue, but a lot of the "pro-bailout" rhetoric is essentially "well of course we need to know we'll get our money back if we deposit it in a bank." This is clearly the best ideal. But that's not how it works! And FDIC limits were real but ignored in this case!
> This is clearly the best ideal. But that's not how it works!
The “systemic risk” exceptions that are in the legislation and announcements over the weekend mean this is exactly how it works.
My guess is that this will be continued - perhaps even publicly formalized - or small banks will cease to exist very quickly in favour of those that are too big to fail.
It's essential a thousand times over that money goes to banks instead of mattresses. Letting bank runs erase savings is a really terrible idea that would be a repeat of the 1920s era mistakes.
> This is clearly the best ideal. But that's not how it works! And FDIC limits were real but ignored in this case!
The FDIC limit is basically useless at this level. 250k for SVB given their clientele really seems futile.
So I'm not sure even discussing it would serve much value. What I fund more interesting was the UK branch of SVB was actually higher in assets than liabilities and was making profit. It's just so strange to me still how this seems to have happened so quickly and seemingly, made worse by some people just getting worried.
Limits were not "ignored", the companies simply have no other choice. The problem is systematic and by design. A medium sized startup/business handling only 25 million would need to bank with 100 different banks, obviously that's inconceivable in practice.
And now look at some of the more prominent customers. Pinterest, Shopify, CrowdStrike Holdings, Beyond Meat, Andreessen Horowitz, Founder's Fund, Circle. The latter is of particular interest because they are confirmed to have had around 3.3 billion dollars with SVB (of the $40 billion they manage in total). So some quick math, they should have used 160000 different banks to be safe, no problem. Apart from the fact that there are less than 5000 FDIC insured banks in all of the US.
>Banks are, at their core, facilitators: depositors lend their money to a bank, for which they are paid interest, and banks lend that money out, again for interest.
That's not why I have a bank account. It's how you avoid paying fees to get checks cashed. If you want interest, you put it in a savings account, or a CD, also in a bank. The only safe alternative is savings bonds.
If you want to gamble the money, then you invest in stocks, bonds, etc.
CDs are more valuable to banks because they prevent you from making a bank run by requiring you to keep your money deposited for a set amount of time. They're still investing that money. They also invest the money in savings accounts.
Putting your money in a bank is essentially the same as investing it, but with a few more safeguards that you're exchanging for losing out on profit.
I have this innovative idea for business. Imagine you charge money from depositors for keeping their money in a big safe vault. No trading or lending their money. You just keep it safe.
That's just a waste of capital and leads to zero business investments. It's exactly what happens in crypto because it's deflationary, and it's the main reason there is no crypto economy beyond the price speculation.
In big business it's called Treasury, which derives from Trezor or Safe.
For example Apple will have a Treasury department to manage it's cash. They don't put it in safes anymore, because, well you seem like an honest person, but your predecessors had a tendency to steal the money from the safe.
You generally don't put it all in one Bank either as they have a tendency to either steal it or gamble it on the markets.
A treasury I worked at had software that would pull money from banks across the world into more trusted banks. That's called cash pooling.
Then traders in the treasury market would buy up government bonds from stable governments.
This costs money and is big business.
So perhaps there's a market for treasury as a service (TAAS).
I'll add on to that idea. What if that is considered a basic human right. One line in a database with your name and a number. And governments, the most powerful entities on earth offer it for free.
Doesn't seem very expensive to offer compared to the amount of times we have to bailout banks....
The problem there is the idea of "money". You can keep your float variables safe in a big vault called a distributed acyclic graph, but there's not much we can do about how people view what those numbers mean compared to the price of a toilet seat.
You're talking about the gold standard, there's better things to do with gold.
These crisis are like car crashes, they happen. But in the end, it's still fun to drive cars really fast, overloaded on wet, winding roads at twilight.
This is one of the better articles written about the whole debacle…
Also demonstrates VCs shortcomings (lack of diligence?) in the affair… which is probably why VCs are shouting about it and pointing fingers at others rather than examining their own failure in this
Maybe startups shouldn't blindly follow Silicon Valley recommendations and make their own decisions on operational matters like who they hire, where they bank, and what systems they use. There's too much groupthink and cult-following especially in the Silicon Valley venture community, where the investor's word is taken as Gospel to be followed to the letter. A bit of independent thinking goes a long way.
> There will, though, be long-term consequences for fundamentally changing the nature of a bank: remember, depositors are a bank’s creditors, who are compensated for lending money to the bank; if there is no risk in lending that money, why should depositors make anything?
Because if the bank doesn't give any interest, people will keep the money in either a competing bank that gives interest or in cash or in other instruments that pay interest.
What a full backstop removes from the interest is a risk premium. You already see that at Chase or BoA accounts. The risk premium is zero so the interest they pay is much lower than other banks. But this is where other banks get an opportunity to compete for deposits.
The only "interest" I've gotten from a bank in probably decades is a free checking account which money can be deposited into and withdrawn from (via paper check or a couple different online payment mechanisms), the very rare notary service, and ATMs (also increasingly rare). I regularly sweep any significant excess cash to a brokerage account. I understand companies keeping larger pure cash accounts but how many individuals are keeping $500K in a bank deposit account?
There's a huge leap taken by this piece with distressing casualness.
"This action effectively means the $250,000 FDIC limit is meaningless: all deposits in any bank are presumably insured by the full faith and credit of the United States."
Exceptional circumstances sometimes call for exceptional measures. A bank with 85% of its accounts over the $250k limit where most of the depositors are contractually locked-in companies is not normal. Moreover the contagion nucleus in this network were a few culpable super-spreaders with exceptional power. Other banks don't face that threat either.
Banking policy must be written to include exceptional circumstances, but the idea that all banking policy needs to be rewritten to burden smaller banks with situational precautions which are impossible for them to encounter is dangerous idiocy. Don't write housing codes that require 9.0 earthquake tolerance in areas primarily hit by hurricanes!
Furthermore it's dispiriting to see generous tit-for-tat given such a cynical portrayal. If two people have knives to each others throats you don't win by just not being the first to cut, you win by putting the knives down.
This situation was exceptional, and the panic was triggered by people with outsized network influence who should have known better. So maybe, just maybe, we deal with the reality of the situation rather than assuming it must be a harbinger of total change.
>If two people have knives to each others throats you don't win by just not being the first to cut, you win by putting the knives down.
Strictly speaking there are 4 outcomes, according to John Nash.
The cooperate outcome is globally the best, but the 2 defect outcomes are much better for the individual winner. The 4th outcome, 'they fought and badly wounded each other, but both lived', is what's going on here, and the FDIC medics are coming in. This helps now but has the perverse effect of increasing the chances of defect behavior in the future, IMHO.
The angle I want to know more about is Peter Thiel. He's already demonstrated the willingness and ability to execute complex plans to destroy enemies (e.g. Gawker). He likes Trump, so not a fan of self-restraint or basic morality. Is it possible that Thiel has a bone to pick with SVB? Or maybe it's bigger, and Thiel, who famously hates competition, saw a way to hurt ALL startups, including some that might one day threaten him and his businesses. It's the old story about the orphan who makes it, recognizes the positive influence the orphanage had on his success, and then burns the orphanage down to ensure no others get its benefits and challenge his power.
If true, it would seem that some of this panic would have been engineered in order to save VC capital at the expense of the rest of us?
---
edit: We really need an analysis of @Jason and @DavidSacks w.r.t [1][2]. They were touting Doomsday on their AllInPodcast[3] but with [1][2] I'm starting to wonder...
Yes, and VCs have been exposed for the leaches they really are. Years spent being actively hostile to government and regulation, encouraging their companies to break the law at every turn, only to come begging when it all threatened to implode.
Has the low cost of online banking removed the need for fractional reserve banking? Why does a basic checking account need to have economy destroying risks?
Because money. Yes to any reasonable person your bank account is money not intended for gambling, but that's not how bankers see it. They're in an industry where appearance is everything.
As long as you drive a Tesla and never have to cook in your Italian marble kitchen (I don't know and don't care if it's a thing, just making a point) it doesn't matter if it's all debt. The entire point of our economy is to kick it downhill and have someone else pay for it.
Nothing grows indefinitely, we all know this, but we pretend economy is different.
Out of curiosity, did anyone ever believe the "rainforest" metaphor for Silicon Valley, that entrepreneurs and investors were more interested in global/"community" success than their own individual wins, and that they wouldn't react egotistically when real money was at stake?
Stratechery asserts this was "probably true" in 2012 but not longer true, and that Uber was one of the first cases where short term/individual wins became more important, even if they destroyed trust.
I find it hard to believe this "let's all of us win together" was ever true.
As somebody who grew up in SV, I think this mythos was incubated around the period between the Yahoo/Ebay IPOs ('96/'98) and the Google IPO ('08). The concept reached its peak (although it was already rotting from the inside) around the time of FB's IPO ('12).
It didn't exist much before, and it's (IMO) fully gone now.
> Banks are, at their core, facilitators: depositors lend their money to a bank, for which they are paid interest, and banks lend that money out, again for interest.
This may be how banks think about themselves, but I'm pretty sure that most consumers, even businesses, don't think about them this way. Would anyone use a bank if it didn't enable certain types of transactions (credit cards, wires, ACH) and didn't include any sort of risk reduction?
> Would anyone use a bank if it didn't enable certain types of transactions (credit cards, wires, ACH) and didn't include any sort of risk reduction?
That is what I always believed hedge funds are.
It might matter that (in my country) I will likely never have enough money to get net profit from my saving account (interests minus price of services), but if I were aiming for that I would invest, not deposit
"remember, depositors are a bank’s creditors, who are compensated for lending money to the bank; if there is no risk in lending that money, why should depositors make anything?"
No, depositors get interest to compensate for inflation.
The way capitalism works is this. Rich people have the responsibility of knowing what to do with their money. If they don't know what to do with it, it won't be long before they're no longer rich. Perhaps people are sympathetic towards FDIC deposits up to 250 thousand dollars. (That isn't capitalism, either.) But at some point people need to evaluate whether or not a bank — or anyplace else, for that matter — is a safe place for their money. If it isn't, the money shouldn't be there.
Of course, this takes work. That's called reality. This is now the second major banking crisis in 15 years. That's called death throes. The system we have is a mess. And bailouts aren't helping. With respect to the system, bailouts are doing the job of alcohol in staving off delirium tremens.
VC money is completely frozen. It's an insane tragedy. There needs to be a bank where we can put our funds above 250k that is insured but also heavily regulated.
This is still a better situation than 2008, where banks were bailed out to the extent that management even stayed (despite deserving prison), and shareholders lost nothing.
So that's the worst possible outcome, today's is probably second worst. But I don't see what would be better. Ben talks about loss of trust now, but we'd actually lose more trust if depositors weren't bailed out, and probably contagion would spread and many banks would fail.
Thinking about an endgame, I think extending this all out into the future, its hard to see banking remaining in any way a free market. Either it becomes state sanctioned and protected profit making, which it already is for the big 4 banks, or banking just becomes fully nationalised, and basically a state run commodity.
You can't get out of it being more and more centralised. I just don't see another way. And when it becomes fully centralised, the question is, does Jamie Dimon actually do anything, or is he basically a state actor with a billion dollar salary?
Is it just me or has Stratechery gone downhill in it's analysis (or at least put too much mindshare on mid-market B2B SaaS startups, AdTech, and B2C).
A number of the Stratechery articles I've read recently seem to remain in that whole echo chamber and don't seem to extend that well into other segments in the larger innovation industry.
ericpauley|3 years ago
The FDIC limit is not just some technicality that businesses abuse with many accounts, it is a recognition of that fact that banks like SVB, which hold large deposits from a small number of highly correlated depositors, are fundamentally more risky than banks with a large number of smaller uncorrelated depositors. Sweeping large deposits across banks and properly investing in treasuries reduces systemic risk and prevents bank runs in the first place. The de facto removal of FDIC caps defeats this diversification and protection.
The current dollar value of the cap also makes sense. Unlike what plenty people are trying to claim, there is no amount of money for which that current system is unsuitable. Deposit sweep accounts cover up to $3M (and diversify across banks, exactly the point of FDIC limits). Money market funds provide short-term treasury exposure above that, and businesses with many millions liquid should absolutely be expected to invest in treasuries. If Bogleheads can do it in their retirement accounts why can't $10M+ startups?
Maybe the SVB depositor bailout was necessary in this case to prevent broader panic, but it sets a grim precedent for depositor behavior that ultimately makes the system more brittle and reliant on government handouts (which despite rhetoric to the contrary, will be paid for by the taxpayer/bank account holder).
hackernewds|3 years ago
I see this spewed haphazardly but have seen no convincing rationale to back it up.
tolmasky|3 years ago
How can a static number make sense given the existence of inflation? We've been told for the last year that inflation is "out of control," and yet in the case of the FDIC cap, $250K in 2012 dollars makes the same amount of sense as in 2023 dollars? To save anyone the work, $250K in 2012 is equivalent to $350K in today's dollars, so, a change of $100K, or 40%. Did TARP, which is repeatedly criticized for being passed too hastily, and also included this $250K cap, have secret future knowledge of interest rates and specifically intend for the cap to reduce in value by 40% over the following 10 years? The FDIC limit started at $2,500 in 1966 and has been increased several times. Have we magically arrived at the final number now?
> Deposit sweep accounts cover up to $3M (and diversify across banks, exactly the point of FDIC limits).
These numbers remain arbitrary. Your argument is only that there needs to exist an FDIC limit, not this particular limit. Why is $3M the right amount for sweep accounts? Saying "you can combine accounts to stack FDIC limits like video game power buffs" is true regardless of the base FDIC limit, it doesn't explain why this limit is correct, too high or too low. Look, it works for $50,000 too: "You can have deposit sweep accounts that cover up to $600K. Money market funds provide short term-term treasury bonds above that". And hey, it works for $500K: "You can have deposit sweep accounts that cover up to $6M. Money market funds provide short term-term treasury bonds above that". See, the surrounding multiplier system has nothing to do with justifying the base number. It seems much more likely that a number that was set 10 years ago when money was worth 40% more, and that has a history of needing to be raised, probably doesn't make sense today and needs another update.
> The FDIC limit is not just some technicality that businesses abuse with many accounts, it is a recognition of that fact that banks like SVB, which hold large deposits from a small number of highly correlated depositors, are fundamentally more risky than banks with a large number of smaller uncorrelated depositors. Sweeping large deposits across banks and properly investing in treasuries reduces systemic risk and prevents bank runs in the first place. The de facto removal of FDIC caps defeats this diversification and protection.
If it is so critical to the integrity of the system, then why aren't accounts required by law to be sweeps above the FDIC limit, and not allowed past the "natural sweep multiplier FDIC limit" at all? You just said it yourself: the purpose is to reduce systemic risk. Then let's actually reduce it instead of "planting the seeds of reducing it if everyone gets sophisticated enough," and then getting angry when they fail to do it. The current system is like purposefully trying to create a tragedy of the commons, where individual mistakes are rarely very rarely punished but together contribute to bringing down the entire system. Allowing below FDIC limit accounts seems to be a weird landmine for both the depositor doing it, and for the larger system it operates in. It's the worst of both worlds. It's like when an API doesn't work, and instead of fixing the API, the author updates the documentation to include a workaround and is baffled why people keep running into this problem. Don't they read the docs? These uses are supposedly supposedly so smart but can't be bothered to find this simple workaround buried in my documentation?
nsmog767|3 years ago
I don't believe this is a binary issue, but a lot of the "pro-bailout" rhetoric is essentially "well of course we need to know we'll get our money back if we deposit it in a bank." This is clearly the best ideal. But that's not how it works! And FDIC limits were real but ignored in this case!
jonathan-adly|3 years ago
Now everyone knows that money in bank is not risk-free, and you limit any systemic fall out.
jen20|3 years ago
The “systemic risk” exceptions that are in the legislation and announcements over the weekend mean this is exactly how it works.
My guess is that this will be continued - perhaps even publicly formalized - or small banks will cease to exist very quickly in favour of those that are too big to fail.
unknown|3 years ago
[deleted]
bioemerl|3 years ago
bilekas|3 years ago
The FDIC limit is basically useless at this level. 250k for SVB given their clientele really seems futile.
So I'm not sure even discussing it would serve much value. What I fund more interesting was the UK branch of SVB was actually higher in assets than liabilities and was making profit. It's just so strange to me still how this seems to have happened so quickly and seemingly, made worse by some people just getting worried.
julienfr112|3 years ago
trompetenaccoun|3 years ago
And now look at some of the more prominent customers. Pinterest, Shopify, CrowdStrike Holdings, Beyond Meat, Andreessen Horowitz, Founder's Fund, Circle. The latter is of particular interest because they are confirmed to have had around 3.3 billion dollars with SVB (of the $40 billion they manage in total). So some quick math, they should have used 160000 different banks to be safe, no problem. Apart from the fact that there are less than 5000 FDIC insured banks in all of the US.
hackernewds|3 years ago
this is simply not true. if anything the bank charges me money to hold my funds.
sebzim4500|3 years ago
I would imagine the people advocating for a 'bailout' (using the most generous possible definition here) want this to become how it works.
Like how in Germany the government guarantees every German bank balance.
I have enough problems, I don't want to have to worry that my bank balance will disappear unless I spread it around in order to abuse a technicality.
mikewarot|3 years ago
That's not why I have a bank account. It's how you avoid paying fees to get checks cashed. If you want interest, you put it in a savings account, or a CD, also in a bank. The only safe alternative is savings bonds.
If you want to gamble the money, then you invest in stocks, bonds, etc.
esja|3 years ago
... isn't how banking actually works.
https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...
ISL|3 years ago
micromacrofoot|3 years ago
Putting your money in a bank is essentially the same as investing it, but with a few more safeguards that you're exchanging for losing out on profit.
softwaredoug|3 years ago
irusensei|3 years ago
koheripbal|3 years ago
SketchySeaBeast|3 years ago
ianpurton|3 years ago
In big business it's called Treasury, which derives from Trezor or Safe.
For example Apple will have a Treasury department to manage it's cash. They don't put it in safes anymore, because, well you seem like an honest person, but your predecessors had a tendency to steal the money from the safe.
You generally don't put it all in one Bank either as they have a tendency to either steal it or gamble it on the markets.
A treasury I worked at had software that would pull money from banks across the world into more trusted banks. That's called cash pooling.
Then traders in the treasury market would buy up government bonds from stable governments.
This costs money and is big business.
So perhaps there's a market for treasury as a service (TAAS).
collectedparts|3 years ago
It's been tried, and was rejected by the very same regulators who now had to bail out SVB: https://www.econlib.org/why-does-the-fed-oppose-narrow-banki...
riffraff|3 years ago
https://en.wikipedia.org/wiki/Custodian_bank
Aloha|3 years ago
pokot0|3 years ago
kordlessagain|3 years ago
gonzo41|3 years ago
swarnie|3 years ago
You can recklessly make money off it for years then when you eventually get it wrong the government will step in and fix your "Oopsie"
That sounds way more profitable.
micromacrofoot|3 years ago
unknown|3 years ago
[deleted]
youngtaff|3 years ago
Also demonstrates VCs shortcomings (lack of diligence?) in the affair… which is probably why VCs are shouting about it and pointing fingers at others rather than examining their own failure in this
rexreed|3 years ago
nine_zeros|3 years ago
Because if the bank doesn't give any interest, people will keep the money in either a competing bank that gives interest or in cash or in other instruments that pay interest.
What a full backstop removes from the interest is a risk premium. You already see that at Chase or BoA accounts. The risk premium is zero so the interest they pay is much lower than other banks. But this is where other banks get an opportunity to compete for deposits.
ghaff|3 years ago
afiori|3 years ago
Like do people make the financial decision to use saving account rather than stock/bonds/hedge funds as investments?
As far as I understand no reasonable bank anywhere offers interest higher than inflation.
iandanforth|3 years ago
"This action effectively means the $250,000 FDIC limit is meaningless: all deposits in any bank are presumably insured by the full faith and credit of the United States."
Exceptional circumstances sometimes call for exceptional measures. A bank with 85% of its accounts over the $250k limit where most of the depositors are contractually locked-in companies is not normal. Moreover the contagion nucleus in this network were a few culpable super-spreaders with exceptional power. Other banks don't face that threat either.
Banking policy must be written to include exceptional circumstances, but the idea that all banking policy needs to be rewritten to burden smaller banks with situational precautions which are impossible for them to encounter is dangerous idiocy. Don't write housing codes that require 9.0 earthquake tolerance in areas primarily hit by hurricanes!
Furthermore it's dispiriting to see generous tit-for-tat given such a cynical portrayal. If two people have knives to each others throats you don't win by just not being the first to cut, you win by putting the knives down.
This situation was exceptional, and the panic was triggered by people with outsized network influence who should have known better. So maybe, just maybe, we deal with the reality of the situation rather than assuming it must be a harbinger of total change.
javajosh|3 years ago
Strictly speaking there are 4 outcomes, according to John Nash. The cooperate outcome is globally the best, but the 2 defect outcomes are much better for the individual winner. The 4th outcome, 'they fought and badly wounded each other, but both lived', is what's going on here, and the FDIC medics are coming in. This helps now but has the perverse effect of increasing the chances of defect behavior in the future, IMHO.
The angle I want to know more about is Peter Thiel. He's already demonstrated the willingness and ability to execute complex plans to destroy enemies (e.g. Gawker). He likes Trump, so not a fan of self-restraint or basic morality. Is it possible that Thiel has a bone to pick with SVB? Or maybe it's bigger, and Thiel, who famously hates competition, saw a way to hurt ALL startups, including some that might one day threaten him and his businesses. It's the old story about the orphan who makes it, recognizes the positive influence the orphanage had on his success, and then burns the orphanage down to ensure no others get its benefits and challenge his power.
cced|3 years ago
If true, it would seem that some of this panic would have been engineered in order to save VC capital at the expense of the rest of us?
---
edit: We really need an analysis of @Jason and @DavidSacks w.r.t [1][2]. They were touting Doomsday on their AllInPodcast[3] but with [1][2] I'm starting to wonder...
[1]: https://twitter.com/innoc_bystander/status/16347730533046108...
[2]: https://twitter.com/ddayen/status/1634925785550319616
[3]: https://m.youtube.com/watch?v=CEee7dAk25c
dougmwne|3 years ago
acover|3 years ago
worksonmine|3 years ago
As long as you drive a Tesla and never have to cook in your Italian marble kitchen (I don't know and don't care if it's a thing, just making a point) it doesn't matter if it's all debt. The entire point of our economy is to kick it downhill and have someone else pay for it.
Nothing grows indefinitely, we all know this, but we pretend economy is different.
sbelskie|3 years ago
chernevik|3 years ago
And that regulation won't look kindly on lending to anything new, different or weird.
A lending model like SVB's won't be supported by regulators.
coldtea|3 years ago
the_af|3 years ago
Stratechery asserts this was "probably true" in 2012 but not longer true, and that Uber was one of the first cases where short term/individual wins became more important, even if they destroyed trust.
I find it hard to believe this "let's all of us win together" was ever true.
gen220|3 years ago
It didn't exist much before, and it's (IMO) fully gone now.
coldtea|3 years ago
It's why all SV companies say their mission is "to change the world" and such BS
commondream|3 years ago
This may be how banks think about themselves, but I'm pretty sure that most consumers, even businesses, don't think about them this way. Would anyone use a bank if it didn't enable certain types of transactions (credit cards, wires, ACH) and didn't include any sort of risk reduction?
afiori|3 years ago
That is what I always believed hedge funds are.
It might matter that (in my country) I will likely never have enough money to get net profit from my saving account (interests minus price of services), but if I were aiming for that I would invest, not deposit
jacknews|3 years ago
No, depositors get interest to compensate for inflation.
mariodiana|3 years ago
Of course, this takes work. That's called reality. This is now the second major banking crisis in 15 years. That's called death throes. The system we have is a mess. And bailouts aren't helping. With respect to the system, bailouts are doing the job of alcohol in staving off delirium tremens.
unknown|3 years ago
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unknown|3 years ago
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alecco|3 years ago
hackererror404|3 years ago
VC money is completely frozen. It's an insane tragedy. There needs to be a bank where we can put our funds above 250k that is insured but also heavily regulated.
zpeti|3 years ago
So that's the worst possible outcome, today's is probably second worst. But I don't see what would be better. Ben talks about loss of trust now, but we'd actually lose more trust if depositors weren't bailed out, and probably contagion would spread and many banks would fail.
Thinking about an endgame, I think extending this all out into the future, its hard to see banking remaining in any way a free market. Either it becomes state sanctioned and protected profit making, which it already is for the big 4 banks, or banking just becomes fully nationalised, and basically a state run commodity.
You can't get out of it being more and more centralised. I just don't see another way. And when it becomes fully centralised, the question is, does Jamie Dimon actually do anything, or is he basically a state actor with a billion dollar salary?
riffraff|3 years ago
I see this mentioned a lot, but I have still not seen a valid explanation of why this would be the case.
Do we think a lot of companies in random industries will run and pull out their cash from banks to put it... where?
themitigating|3 years ago
alephnerd|3 years ago
A number of the Stratechery articles I've read recently seem to remain in that whole echo chamber and don't seem to extend that well into other segments in the larger innovation industry.
boh|3 years ago