Just an old goat

Been seeing a lot of talk about what DID happen with Silicon Valley Bank, and the ways it is similar to, and distinct from, a bailout.

But I've seen very little discussion on the "what if we didn't?" angle.

What would be the potential economic fallout of depositors only being insured to the FDIC minimum? Perhaps I'm naive, but it seems like this would largely only affect VCs and large businesses.

Mar 14, 2023 at 4:42pmWeb
Show threadpenguin42Mar 14, 2023
@Sifuri_Ibex No, that's the problem - it's small businesses (with VC funding possibly) that get hit. The really big businesses do clever things with their money rather than keep it all in one bank. The smaller companies are keeping their working capital in maybe one or two banks; they have to have that money sitting their to pay their employees or suppliers each week or month; that would often be more than that smallish limit.
Show threadJust an old goatMar 14, 2023
@penguin42 If so many real, solvent, small businesses were relying on this bank, how could SVB become so suddenly and dramatically insolvent?
Show threadpenguin42Mar 14, 2023
@Sifuri_Ibex I'm not sure; but something to do with bonds - banks dont keep your money in gold in a vault, they invest in *something* - gov bonds were supposed to be safe; gov *will* pay you back (so it's safe) but for a given bond that might be a promise to pay you back in say 10 years. But if you need the cash now (because you have a bank run) you need to find someone to buy it, possibly at a loss if no one else wants long bonds at the moment (because new bonds have higher interest rates???)
Show threadAlkaris  Mar 14, 2023

@Sifuri_Ibex it's now in the hands of a third-party creditor who manages what goes on with it. So small startup businesses will be heavily affected, the bigger businesses not so much since they'll still have cash flow from somewhere.

There's quite a bit of the discussion from LTT's WAN Show. https://www.youtube.com/watch?v=5Wwx7T6Stz8

Bank Go Bye Bye

YouTube
Show threadDentonMar 14, 2023

@Sifuri_Ibex I haven’t followed it close yet,but banking regulation and support without anything else doesn’t seem like it will be enough to really fix things.

I don’t think banks should just go bankrupt from bank runs, generally. I also don’t think people should starve because they got laid off, it would be great if people stopped making everything into a false dilemma fallacy.

Show threadJust an old goatMar 14, 2023
@Denton Fair, I wasn't trying to make a moral judgement here, just to better understand why this happened the way it did.