“That’s how capitalism works”!!
Has he been scrolling r/antiwork and r/collapse, signing in at the Bear of Hex, keep a copy of the Communist Manifesto bedside?
Is this just a joke?
On a serious note, if it’s not, how far are the puppets in government prepared to go in what could be a cataclysmic moment of comeuppance for the Economic Terrorists of Wall St?
They aren't calling it a bailout because it's not a bailout. A bailout would be a loan to the shareholders (the owners) of SVB. What the Fed is doing is basically connecting the SVB deposit accounts (the customers) directly up the Fed so that businesses can pay their bills. Whatever difference there is between assets and liabilities will be paid out of the Deposit Insurance Fund run by the FDIC and paid for by premiums from FDIC member institutions (other banks). If there isn't enough money in the DIF, the FDIC can either borrow from the Fed or issue debt to cover the rest. SVB equity will be/is worthless and their creditors (people who lent money to SVB) are shit out of luck, which is why it's not a bailout.
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A bailout is when you try to keep a company from failing, which means bailing out the owners who fucked up. The FDIC is liquidating all of SVB's assets to cover it's liabilities and filling in the rest from the DIF. Depositors are not owners of SVB, they are customers. They don't have control over SVB's risk management, or lack thereof.
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FDIC insurance is $250K per account type per customer per bank. Once you hit $250K in a checking account at one bank, thats it. You can't open another checking account at the same bank that will be insured. What you are suggesting is that companies with millions of dollars that they need to pay their bills (including payroll) should go around opening hundreds of checking accounts at different banks to pay their bills and have it all insured. That's not logistically possible.
That is, in fact, exactly what a lot of companies in this space are doing IIRC. It's not hundreds, but still; look at this for example. They split those startups' money into nine 250k batches, ensuring at least 2.25m$ is protected. I found these guys randomly but I'm sure they're neither alone nor the largest.
I have worked for everything from Fortune 50 companies to startup. Almost no one uses CDARS or any of the alternatives. I've never worked anywhere that used it. $2.25M is one payroll cycle at a lot of medium-sized companies. Amazon does ~$1B every two weeks just to it's warehouse employees.
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CDARS is still limited by the number of FDIC members. There are corporations who still wouldn't be able to meet payroll and pay their bills even if they maxed out CDARs. Amazon would almost max that number every two weeks just paying their warehouse employees.
It's almost like having entities this large is inherently problematic from an economic perspective or something.
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They have that mechanism! It's the Fed stepping in to magically make folks whole even though they don't have the requisite insurance. Insurance only works when it can average over lots of smaller events. It doesn't work well for things like this where this are very infrequent very massive events. So there cannot be insurance for bank failures like this. Instead, the capitalists have access to the money printer and will hold copy when shit goes wrong like this.
Maybe? I don't know as much about insurance, but they would still rely on banks to pay out claims like this, which would just cause a bank run somewhere else. The whole reason this is going so fast is that it's not supposed to happen with regular deposit banking. Banks are supposed to have way better risk management than SVB and Signature, but that's also not necessarily regulated. I would think that this is going to have to result in new regulations, but the fact that the Fed is saying that SVBs shareholders and creditor can get fucked might mean that the industry is going to start requiring new controls internally.
Or nothing will change and the industry and politicians will waive it off as an aberration. It's pretty hard to say.
You're right, but the only losers in that scenario are the workers. The porkies at the top will make it out relatively unscathed either way, but taking steps to avoid covering those uninsured deposits means payroll is missed and workers aren't paid for work already done and are fired immediately
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I'm sure that even in a collapse of SV startups, the evil ones will survive. Deregulation machines funded by Thiel and the Saudis aren't going to collapse because some of their cash vanished. The other major genre of startup is R&D department cost cutting, and again I imagine the established tech giants who are doing it would rather just do a cash injection than long term commitments to their own R&D. I don't necessarily think the R&D ones are always evil, but if it's not one of these two major categories I'm not sure the companies are significant enough to matter anyway lol.
They can't buy additional insurance to cover larger deposits (not FDIC)?
There is a deposit product called Insured Cash Sweeps (ICS) which moves chunks of 250k around to different banks. SVB supposedly offered this product and yet no one was using it
There's no market for that currently.
And there will never be one because of this.
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It means I'm talking with leftists who have no understanding how modern finance capitalism works.
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Norway is a socialist country that practices socialism.
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Oh, I thought we were taking turns saying things that are wrong.
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What do you mean by increased bank fees? How is that a result of this?
The funds that will be covering all these billions in deposits will come from a fund created by fees the feds have levied on the banks. It's a special assessment just levied on the banks. They will collect that loss of revenue through charging their customers more.
So in a long time about way. Off another tax payer bailout
Everything needs to be explained since we are not born with innate knowledge of the world. Except maybe how to poop, I think we know that from birth
I came into this world knowing pee pee, poo poo and I never learned anything else
The assets that are being liquidated include the liabilities the bank couldn’t cover in the short term because they were paired with a long play on low interest rates. Since it’s pretty likely the fed will lower rates now whoever buys the banks assets or even certain liabilities will make out like a bandit.
Even if they don’t lower rates, whoever buys the “bad” assets will have already benefited from the shakeout whose negative repercussions were almost completely covered by the fed.
The action the fed is taking has the outcome of covering a shortfall not for the entity “Silicon Valley Bank” but for everyone exposed to it including the investors.
There’s people at the left side of the bell curve meme saying “it’s a bailout” and people at the right side saying “it’s a bailout” and here you are saying “it’s actually not a bailout, here’s a detailed explanation”.
You’re right, it’s not technically a bailout but that’s not much solace to people seeing the fart huffing psychopaths in California whose big idea was to make investments with the stipulation that the capital be all held in this one totally not a scam institution do a trust fall with the goddamn fed.
Liabilities are not being liquidated. Assets (like their bond portfolio) are being liquidated to cover liabilities (deposits).
I have no idea if the Fed is going to lower or pause rates. The CPI numbers come out tomorrow. The fact that they are setting up this Bank Term Funding Program makes me think that they aren't going to pause. And even then, the Fed isn't going to lower interest rates to the point where those treasuries are selling at par value. They would have to decrease the interest rate 3-4% overnight to do that.
Once again, this does not cover a shortfall for investors or creditors. The FDIC is stepping in such to the point where Assets = Liabilities, not to the point where Assets = Liabilities + Equity (the balance part of a balance sheet). SVB investors and creditors are likely losing all of the investments they had made in the bank.
Yeah I should have proofread that before I posted. Hopefully this one’s not got a bigass idiot error in it.
Broadly speaking though it does cover investors. The same companies pumping vc money to startups with the stipulation that it be held in svb were investing in svb. That’s why they didn’t push ics (not that anyone (1) does) or payroll management or anything on these absolute buffoons getting free money to have adult daycares.
So they end up buying assets at a discounted price and use that to turn their lost investment into a haircut. One side of the straddle, if you can call it that, idk what the real word for that investment strategy is, is accounted for and oh look, they get to keep riding the ten wagers on black they had going too, all courtesy of the us government’s largesse, saving the hardworking job creators at “Uber for pet rentals”.
(1) I don’t even have enough to worry about it and an ics equivalent was offered me by the bank. Two small businesses I’ve worked for I know for a fact we’re covered by similar schemes. It’s always surprising when the accepted wisdom is that no one worries about that stuff although I imagine after this shakes out no one really ever will again.
I think people would understand a bailout to mean something to helps the bankers, not the people with money in the bank.
The govt is selling the bank assets and distributing that money. The FDIC is not giving out that money. The only federal cost is the cost of administering all of this
It's not a bail out. It's the death of American capitalism but we are going to act like it's just no big deal
:sicko-yes:
The sky is water because it's blue.