What drives you? Is it money, general problem-solving?
I must be wired differently because I cannot understand how someone can try so many things in so many different industries without being driven by a mission beyond financial wealth. I have friends who are like this and I don’t get it.
Error is the easiest and most common government excuse for inexcusable malice. Which means that people shouldn't allow for that excuse in the context of grand scale failures like 2008, 2003, etc.
Why in the world would you want to own the bank? Whoever is buying it is doing so to get the customer list. The assets aren't really worthwhile given that they will all need to be sold to cover the depositors, given that if they opened as DAOBank on Monday everyone would pull their money out.
The only case I see of not having a run on the remaining balances is if someone like Chase buys them.
Couldn't someone with a lot of cash buy them, pay back the depositors without having to sell assets, then hold the assets until maturity, and then make a profit (presumably having bought them at a discount)? As far as I understand, the nominal value of assets still exceeds the obligations?
For the big SVB assets, the outcome of "holding the assets until maturity" is the price at which you can sell these assets; someone who intends to do that will buy these assets at a rate where they roughly break even - they're pretty much a commodity, so the auction price is close to the value.
But buying long-term assets at some small discount (e.g. 10%) and holding them to maturity would not make a profit - the nominal value of these assets + the interest on the (low!) fixed interest rate is far lower than the interest rate you can get elsewhere; if the difference between the interest rate that SVB had fixed and the current market rate is ~2% (which seems roughly in the ballbark) then a crude estimate is that the discount has to be 20%-ish if there's 10 years remaining until maturity and 40%-ish if there's 20 years remaining... so that's appropriately reflected in the (lowered) price those assets can fetch. The nominal value is irrelevant as future money is worth much less than current money.
>As far as I understand, the nominal value of assets still exceeds the obligations?
AFAIK that number was based on the book value (ie. how much it cost for the bank to buy the bonds/MBS), not the current fair market value. Other sources say that SVB is in the hole when using current fair market value for their assets.
>So big was this drawdown that on a marked-to-market basis, Silicon Valley Bank was technically insolvent at the end of September. Its $15.9 billion of HTM mark-to-market losses completely subsumed the $11.8 billion of tangible common equity that supported the bank’s balance sheet.
>Whoever is buying it is doing so to get the customer list.
Not a bank or in the financial sector, but this makes no sense to me. It is likely fairly easy to get the list of VCs who used SVB. If nothing else, startup businesses which SVB catered to are significantly less appealing than they were one to two years ago. What fraction of those clients required low interest rates to keep the business viable?
It's easy to get the list. It's not easy to get all of them to move their assets over to your bank. When you buy the bank the assets are yours automatically. They can of course choose to then move it out, but why would they?
Because the hypothetical acquirer would have not only their assets but also all their other products - loans, credit cards, all the established payments to/from their accounts, etc. which are harder to switch.
Maybe a stupid question: if banks can collapse from a bank run, shouldn’t the entire model be questioned? A bank run is simply when a threshold number of customers decide to withdraw their cash, with every right to do so. With social media + frictionless mobile banking, the entire notion of teetering your model on mitigating the risk of a “bank run” seems anti-customer, regressive, and unsustainable.
SVB didn’t collapse because of the bank run. There was a bank run because they collapsed. It is true that the bank run may have accelerated the collapse slightly but they were in really bad shape before it started.
A lot of people want to blame depositor panic, but I don’t think that is really fair. In a properly managed bank, the assets exceed the liabilities, which means that if people want their money out, the bank can liquidate their assets to pay them and still have money left over. SVB’s assets are worth far less than their liabilities (to the tune of nearly $100B dollars by some estimates). Panicking depositors didn’t cause that.
I’m not blaming depositors. In fact, I think depositors have a right to panic withdraw. They’re making a decision to take business elsewhere, as they should.
That that can cause or accelerate collapse makes me question the entire bank model.
What other model leads to instant death, damage to their entire customer base, and collateral damage to the broader system, when a certain number of customers decide to go elsewhere?
I wasn't talking about you when I was saying that some people are blaming depositors. Some other commenters are really angry at the VCs that participated in the run. Their anger is understandable, but misplaced in this case IMO.
> What other model leads to instant death, damage to their entire customer base, and collateral damage to the broader system, when a certain number of customers decide to go elsewhere?
None of these things happened because some customers decided to go elsewhere. They were going to happen anyway. SVB was in really terrible shape and was already in the process of collapsing.
Customers also want to earn easy, high interest, that's the main issue. You're taking a risk (albeit a small one) with your deposits; your money is being lent by the bank and they pay you interest in return.
If you only want your cash to be held safely, put it in a safety deposit box.
Don't want to move the goalposts, but I think it's more accurate to say that most people (and companies) park their money in banks with the following expectations:
* It's easily and quickly available
* The number only goes smaller when the account owner authorizes it for stuff the account owner wants to spend money on
* The account owner does not have to think about any of the actual logistics of making the above
Naturally, these are in tension - it costs money to make all of this happen. And since people want the number in the account to not go down (through fees or whatever), then 'naturally' the bank needs to make $$$ somehow.
The flip side of your original question about "business model" validity is that the business model is heavily subsidized by the state and overall society because this particular business model generates a lot of liquidity, which is generally believed to be net beneficial for governments, societies and countries.
In effect, this entire business model and all the regulation and laws and structures put in place are attempting to systemically will into being a high-trust environment. The possible downsides of this system more or less scale with the size of the gap between the actual underlying society, and the degree of trust implied by the system.
Give me a break, no one is getting high interest returns from their cash savings account. A pittance is given to savers so banks cause my money for lending. Yet, when I want to borrow money from the bank on their credit card the interest rate is in the double digit percentages.
Precisely:
“At the end of 2022, SIVB only offered 0.60% more on deposits than its peers as compensation for the risks illustrated below; in 2021 this premium was 0.04%.”
In the UK, you are only covered up to £80k though... I could understand people wanting to get at least money over £80k out, but also how long does it take to get access to your cash if you have to go through the government insurance procedure. Is it days, weeks, months ? I have no idea and wouldn't want to have to find out.
In YC it often is. You are almost expected to prop up other YCs companies with your funds. If everyone buys each others services everyone can show their super duper growth and nobody lost anything (except VCs who invest later).
If your competitors can't pay their employees you can poach them for very cheap if they are desperate to make rent or mortgage payments. So more sensible competitors might even benefit from the stupider ones.
provided their main customer base is not from the area or the sector then it's pretty fantastic for them, especially if they had significant competition in their business model and many of those competitors are now insolvent
VCs with no personal skin in the game have funded what is essentially addiction engineering. It’s wild that the industry does not seem to have the awareness to understand or care about this. People are getting paid fat salaries to figure out how to covertly manipulate users into abdicating their attention and time to wholly isolated, disconnected, and malnourishing behaviors.
Now the techies are concerned with the mental health crisis.
I'm not going to feign surprise that there is no shortage of young, white, straight men with engineering degrees that either don't care or can't comprehend that they are contributing to a mental health crisis in exchange for $250k/yr.
The majority of people in engineering roles in the tech industry aren't white, engineering in tech is now a heavily East Asian/South Asian dominated segment of the industry, especially in the tech companies that are producing these things. Young, definitely, straight probably, men mostly, but not so much white.
All of those things likely don't matter, what matters is $250k/yr puts you in the top 5% of earners in the United States of America and the top 0.01% of earners globally. That's a major motivation to do whatever is necessary to earn. Upton Sinclair said it correctly nearly a hundred years ago: “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”
All available evidence indicates socioeconomics trumps demographics every time. The issue you're describing is because people are being paid large sums of money (relative to the rest of global society) to do work that is bad for the rest of society. It wouldn't matter if they were purple aliens with no genitalia, they're being paid to do a job that is a net negative for society, and the pay for that job is significantly higher than their alternatives.
Maybe stop trying to make everything about identity politics, especially in a conversation where there's actually important political issues at hand that impact everyone globally?
Because many of the engineers here either do not understand or are unwilling to accept that society operates in more dimensions than the technical and "rational". They see celebrity and functions like marketing and sales as inherently bullshit and unnecessary.
A single bad seamstress causing bad clothing to be delivered to customers is a process failure, the same way no single engineer should be responsible for Saleforce's production systems going down. And in most ways, implementing quality control on your product is a lot easier than controlling the personal life of your spokespeople.
Any company that's paying $10M to a spokesperson will have (maybe I should say "should have") a lot of employees dedicated to that spokesperson and the campaign. They might have a clawback clause if the spokesperson shows bad judgement, and can also get some additional good marketing if they are proactive in distancing themselves from their Kanye-esque spokesperson.
So I guess, like you say, there is a quality control process regardless.
I think the larger issues are probably the decisions of the pre-seamstress process employees. Bad choices in materials or cost-savings measures can turn off customers.
I must be wired differently because I cannot understand how someone can try so many things in so many different industries without being driven by a mission beyond financial wealth. I have friends who are like this and I don’t get it.