"this is very different from “bailing out” Silicon Valley Bank, by the way—it simply means that depositors won’t lose their money". From the point of view of protecting tax payers, or encouraging people to do some due diligence on where they put their money, how do you think these differ? Every finanical manager I have talked to in the l…
"this is very different from “bailing out” Silicon Valley Bank, by the way—it simply means that depositors won’t lose their money". From the point of view of protecting tax payers, or encouraging people to do some due diligence on where they put their money, how do you think these differ? Every finanical manager I have talked to in the last 48 hours agrees that SVB has been bailed out, if not in words then in deed.
taxpayers will bear the cost as banks shift the burden , the president and his enablers lied. in a high inflationary period banking costs are going to increase .
Exactly. The government has essentially said that deposits will be covered, even if that has to be done using bank insurance that was intended only to cover deposits up to $250K -- and which both the bank and its depositors KNEW would only be covered up to $250K. Which means other banks will be compelled to help cover these deposits (through the premiums they've paid into FDIC, presumably) if SVB assets are insufficient to cover them.
Whether or not that actually DOES turn out to be necessary is hardly the point. The government has made it clear that depositors who knowingly took an outsized risk here will be made whole, even if it must be done at the expense of other banks (and their depositors). (Because the FDIC bucket is presumably not limitless, after all ... paying out to customers of any one bank presumably reduces the amount in the bucket that's available for the next.)
That is a bailout. It is a bailout of depositors who should have known better, but decided to take the gamble because they liked the perks that SVB provided depositors.
Worst, it sends the message to other banks that there are zero real consequences (at least, up until sudden death) of taking outsized risks to maximize bank profits and attract depositors.
It signals to depositors that there are zero consequences to taking outsized risks by signing up for whatever ill-advised perks/returns a bank might offer, and to not taking even basic responsibility for managing their assets prudently.
And because there no consequences, other banks -- banks that might otherwise have remained conservative and responsible -- will feel massive pressure to engage in the same risky behavior in order to remain competitive with banks that do.
Unless the depositors are given rates that should signal caution, they should be able to bank their funds on trust.
Investors are a different story.
They need to be much more cautious and, in this case, they were not and will be paying for their negligence given it does not appear the bank attempted to mislead them.
A hallmark of recent years has been the government redefining traditional terms for a variety of things to their benefit. Bailout, recession, vaccine, etc.
"First, they came for our language; but I didn't really give language that much thought. 'Big deal', I thought, 'it's just words.' So I said nothing. Then they came for our rules, but I thought,'Rules? We've seen them made and un-made' so, again, I said nothing" ...
This is everything. What and how much egregiousness will it take for people to act? They know where that action will lead. We’re still in ‘this really doesn’t affect me directly, so I can go on with my life, and hopefully it will go away” mode.
Banks get funds to make investments from three sources, equity, bonds and deposits. People who invested in SVB (purchased their equity or purchased their bonds) are going to get hurt financially. The equity purchasers will get nothing, lose everything, and the bond holders will probably get cents on the dollars. The bankruptcy process is long and contentious.
Bailing out depositors is nuanced. I personally despise bailouts of any kind; however, our fractional banking system is built on trust and if depositors lose trust in the banking system then bad things happen, very bad things.
Bailing out companies that knowingly left millions of dollars in uninsured bank accounts creates a moral hazard. I read somewhere that over 90% of depositors were over the $250K threshold, which is significantly higher than most commercial banks. These companies made risky financial decisions just like management at SVB who took way too much interest rate risk and customer risk. Shareholders and creditors could sue the management team for fiduciary negligence and potentially fraud too. A thorough reading of SVB’s financial statements exposed a lot of this. No internet needed.
They poorly managed their portfolio and interest rate risk, two of the most important things in banking. Subsequently, those companies that had millions of dollars in their accounts also mismanaged their assets as they are multiple vehicles they could have used to reduce that risk.
I don't mind backstopping the depositors. It's going over the 250K stated limit that bothers me. If the policy is full backstop, then state that policy and accept the moral hazard. Instead, we have "250K most of the time unless the depositors are people we know, in which case we back them to the hilt." It's different rules for different classes of people, and America isn't supposed to be built on that sort of aristocratic crap.
I could not agree more! The people and companies that deposited their funds at SVB knew the guarantee was only for $250K. There’s a little sign at each teller window stating that fact. The adults turned out to be financial children plunking down their money with eyes wide shut. Like any other child they need to take their knocks and learn from experience. Why are we rewarding bad behavior???
Because we allow these people to make chumps of us. (This has been pointed out already by others here.) Americans, some time ago, started going around with little signs taped on their backs : "Kick me".
Washington politicians-- the Democrats who brought you the Steele dossier and election-fraud of 2020 above all-- and their colluding partners in the civil service did not need more than that in an invitation.
Things take time to trickle through to the wider general public's television-addled consciousness. When they come to grasp the full extent of this episode of conspiratorial graft at high levels--that is, if and when they catch up with people who have your understanding-- they may react with force which Washington cannot resist. Then maybe some of those responsible shall be held to account--and the ill-gotten gains indemnified by taxpayers clawed back. "Big enough to fail (fraudulently), small enough for jail."
I agree but differ slightly. If the FDIC is in fact going to guarantee all deposits, not just those $250K and below, then the premiums banks pay will be MUCH higher and the customer will end up paying for it, as it should be. Most likely in the form of higher bank fees or lower interest.
Sorry, Hutch. All forms of insurance need to set limits somewhere. The bank buys FDIC insurance from and through the federal government. The GOVERNMENT sets the rates and the limits to coverage. It’s the only way to know what is the limit, over the whole banking system, of possible risk. If you want to bargain for greater coverage try, say... maybe Lloyds of London or some such. I believe there are some U.S. insurance companies that will accept that kind of risk. Probably less today than a couple of weeks ago...
Fractional Reserve Banking is borne on legalized fraud. Not trust! We never needed this system in the first place. And bank failures are the one way to keep banks honest and accountable.
Besides, if this is an F.D.I.C.-covered bank--as I assume it to be--then depositors' accounts are insured up to 250k per account. Now, of course, in Sili-Con Valley, 250k only covers the costs of the kids' private annual schooling, annual vacations and the private club memberships and the luxury car leases.
Oh, well. When these people tighten their belts, they still have beautiful living-standards which many of us would envy.
Ah yes, the impetus to create the Creature from Jekyll Island. A great record it has, mind you, what with more recessions and depressions from the prior century, comparatively insane levels of inflation and lower rates of actual wealth creation to boot.
The Jeffersonians and Jacksonians were right. Central banking is a viper. And it enables the fragile, fraudulent FRB system.
If these were solid quiet banks in, say, eastern Ohio, they’d drop dead and nobody in gov would lift a finger.. but these? Silicon Valley and barney frank?
No, no, no. What you think you see isn't what you really see. Look over there! This is just a trick of the internet and you are starting to believe that up is up. If it weren't for some soothing gurus to point out that you have no way of really understanding what is happening, you might conclude (erroneously of course) that two plus two somehow equals four. Keep trying and spend some more time on twitter.
"this is very different from “bailing out” Silicon Valley Bank, by the way—it simply means that depositors won’t lose their money". From the point of view of protecting tax payers, or encouraging people to do some due diligence on where they put their money, how do you think these differ? Every finanical manager I have talked to in the last 48 hours agrees that SVB has been bailed out, if not in words then in deed.
Indeed. This betrays astonishing ignorance on the part of the author.
taxpayers will bear the cost as banks shift the burden , the president and his enablers lied. in a high inflationary period banking costs are going to increase .
Exactly. The government has essentially said that deposits will be covered, even if that has to be done using bank insurance that was intended only to cover deposits up to $250K -- and which both the bank and its depositors KNEW would only be covered up to $250K. Which means other banks will be compelled to help cover these deposits (through the premiums they've paid into FDIC, presumably) if SVB assets are insufficient to cover them.
Whether or not that actually DOES turn out to be necessary is hardly the point. The government has made it clear that depositors who knowingly took an outsized risk here will be made whole, even if it must be done at the expense of other banks (and their depositors). (Because the FDIC bucket is presumably not limitless, after all ... paying out to customers of any one bank presumably reduces the amount in the bucket that's available for the next.)
That is a bailout. It is a bailout of depositors who should have known better, but decided to take the gamble because they liked the perks that SVB provided depositors.
Worst, it sends the message to other banks that there are zero real consequences (at least, up until sudden death) of taking outsized risks to maximize bank profits and attract depositors.
It signals to depositors that there are zero consequences to taking outsized risks by signing up for whatever ill-advised perks/returns a bank might offer, and to not taking even basic responsibility for managing their assets prudently.
And because there no consequences, other banks -- banks that might otherwise have remained conservative and responsible -- will feel massive pressure to engage in the same risky behavior in order to remain competitive with banks that do.
I agree that the depositors will be bailed out.
Unless the depositors are given rates that should signal caution, they should be able to bank their funds on trust.
Investors are a different story.
They need to be much more cautious and, in this case, they were not and will be paying for their negligence given it does not appear the bank attempted to mislead them.
A hallmark of recent years has been the government redefining traditional terms for a variety of things to their benefit. Bailout, recession, vaccine, etc.
"First, they came for our language; but I didn't really give language that much thought. 'Big deal', I thought, 'it's just words.' So I said nothing. Then they came for our rules, but I thought,'Rules? We've seen them made and un-made' so, again, I said nothing" ...
This is everything. What and how much egregiousness will it take for people to act? They know where that action will lead. We’re still in ‘this really doesn’t affect me directly, so I can go on with my life, and hopefully it will go away” mode.
Next they coming for us! That’s the last of us (no pun intended)
Banks get funds to make investments from three sources, equity, bonds and deposits. People who invested in SVB (purchased their equity or purchased their bonds) are going to get hurt financially. The equity purchasers will get nothing, lose everything, and the bond holders will probably get cents on the dollars. The bankruptcy process is long and contentious.
Bailing out depositors is nuanced. I personally despise bailouts of any kind; however, our fractional banking system is built on trust and if depositors lose trust in the banking system then bad things happen, very bad things.
Bailing out companies that knowingly left millions of dollars in uninsured bank accounts creates a moral hazard. I read somewhere that over 90% of depositors were over the $250K threshold, which is significantly higher than most commercial banks. These companies made risky financial decisions just like management at SVB who took way too much interest rate risk and customer risk. Shareholders and creditors could sue the management team for fiduciary negligence and potentially fraud too. A thorough reading of SVB’s financial statements exposed a lot of this. No internet needed.
They poorly managed their portfolio and interest rate risk, two of the most important things in banking. Subsequently, those companies that had millions of dollars in their accounts also mismanaged their assets as they are multiple vehicles they could have used to reduce that risk.
I don't mind backstopping the depositors. It's going over the 250K stated limit that bothers me. If the policy is full backstop, then state that policy and accept the moral hazard. Instead, we have "250K most of the time unless the depositors are people we know, in which case we back them to the hilt." It's different rules for different classes of people, and America isn't supposed to be built on that sort of aristocratic crap.
I could not agree more! The people and companies that deposited their funds at SVB knew the guarantee was only for $250K. There’s a little sign at each teller window stating that fact. The adults turned out to be financial children plunking down their money with eyes wide shut. Like any other child they need to take their knocks and learn from experience. Why are we rewarding bad behavior???
Because we allow these people to make chumps of us. (This has been pointed out already by others here.) Americans, some time ago, started going around with little signs taped on their backs : "Kick me".
Washington politicians-- the Democrats who brought you the Steele dossier and election-fraud of 2020 above all-- and their colluding partners in the civil service did not need more than that in an invitation.
Things take time to trickle through to the wider general public's television-addled consciousness. When they come to grasp the full extent of this episode of conspiratorial graft at high levels--that is, if and when they catch up with people who have your understanding-- they may react with force which Washington cannot resist. Then maybe some of those responsible shall be held to account--and the ill-gotten gains indemnified by taxpayers clawed back. "Big enough to fail (fraudulently), small enough for jail."
I agree but differ slightly. If the FDIC is in fact going to guarantee all deposits, not just those $250K and below, then the premiums banks pay will be MUCH higher and the customer will end up paying for it, as it should be. Most likely in the form of higher bank fees or lower interest.
Sorry, Hutch. All forms of insurance need to set limits somewhere. The bank buys FDIC insurance from and through the federal government. The GOVERNMENT sets the rates and the limits to coverage. It’s the only way to know what is the limit, over the whole banking system, of possible risk. If you want to bargain for greater coverage try, say... maybe Lloyds of London or some such. I believe there are some U.S. insurance companies that will accept that kind of risk. Probably less today than a couple of weeks ago...
YES. And this is why only the FF&C of the US Treasury can offer the unlimited backstop.
Fractional Reserve Banking is borne on legalized fraud. Not trust! We never needed this system in the first place. And bank failures are the one way to keep banks honest and accountable.
Everybody talks about 1929 but this in some ways looks more like 1907
Which was the final impetus for creation of the Federal Reserve. The truth is you cannot fix greed. So let them fail.
Besides, if this is an F.D.I.C.-covered bank--as I assume it to be--then depositors' accounts are insured up to 250k per account. Now, of course, in Sili-Con Valley, 250k only covers the costs of the kids' private annual schooling, annual vacations and the private club memberships and the luxury car leases.
Oh, well. When these people tighten their belts, they still have beautiful living-standards which many of us would envy.
Ah yes, the impetus to create the Creature from Jekyll Island. A great record it has, mind you, what with more recessions and depressions from the prior century, comparatively insane levels of inflation and lower rates of actual wealth creation to boot.
The Jeffersonians and Jacksonians were right. Central banking is a viper. And it enables the fragile, fraudulent FRB system.
"The Jeffersonians and Jacksonians were right. Central banking is a viper. And it enables the fragile, fraudulent FRB system."
Bank frailties are all ultimately founded on human frailties. Only Mother Nature herself resists all fraud and collects all debts due in full.
Read about the history of state banks--after 1789--until the creation of the federal reserve system. It isn't "pretty".
If these were solid quiet banks in, say, eastern Ohio, they’d drop dead and nobody in gov would lift a finger.. but these? Silicon Valley and barney frank?
This should have been the real focus of the article. They only gave a sh**t because of where it’s located and who the depositors are.
No, no, no. What you think you see isn't what you really see. Look over there! This is just a trick of the internet and you are starting to believe that up is up. If it weren't for some soothing gurus to point out that you have no way of really understanding what is happening, you might conclude (erroneously of course) that two plus two somehow equals four. Keep trying and spend some more time on twitter.
Huh? Say whaaaa???