Investing Thread

[4everwarriors]

Any y'all know if Mecca has jacked up their prices, hey?

[Skatastrophy]

Any y'all know if Mecca has jacked up their prices, hey?

I heard they're charging per curd ever since NFTs tanked

[jesmu84]

Do y'all think this bailout now means any risk/loss will be forever backstopped by the Fed?

Will banks increase risk-taking?

I'm guessing even if taxpayer money doesn't directly pay for any loss/deposits, we'll all still pay for it in increased FDIC fees

[Goose]

jesmu

I was talking with a well versed finance guy today and he believes we have socialized risk taking. His opinion, any company that does not raise as much money as possible is missing the boat. I happen to agree, the bigger the risk, the bigger the safety net.

There is no reason for any bank or financial institution not to leverage things as much as possible.

IMO, we have lost touch with our economy functions and it is truly hard to understand how it ticks anymore.

The silver lining, imo, is that I do not believe the Fed or Federal government will ever let a financial crisis get out of hand. If you know there is backstops at every mishap, why not take the risk to crazy levels.

[jesmu84]

jesmu

I was talking with a well versed finance guy today and he believes we have socialized risk taking. His opinion, any company that does not raise as much money as possible is missing the boat. I happen to agree, the bigger the risk, the bigger the safety net.

There is no reason for any bank or financial institution not to leverage things as much as possible.

IMO, we have lost touch with our economy functions and it is truly hard to understand how it ticks anymore.

The silver lining, imo, is that I do not believe the Fed or Federal government will ever let a financial crisis get out of hand. If you know there is backstops at every mishap, why not take the risk to crazy levels.

As in the inflation war, strategy like this seems like it will only end up hurting select groups

[Skatastrophy]

Do y'all think this bailout now means any risk/loss will be forever backstopped by the Fed?

Will banks increase risk-taking?

I'm guessing even if taxpayer money doesn't directly pay for any loss/deposits, we'll all still pay for it in increased FDIC fees

Bank operators and investors have no upside in increased risk taking. The owners and investors are the ones that lost their shirts on this debacle and rightfully so.

The Fed backstopping the network effect of thousands of depositors losing their money is the rightful place for government to act. The depositors took no risk other than trusting a bank to hold their cash in a savings account.

[Jockey]

jesmu

I was talking with a well versed finance guy today and he believes we have socialized risk taking. His opinion, any company that does not raise as much money as possible is missing the boat. I happen to agree, the bigger the risk, the bigger the safety net.

There is no reason for any bank or financial institution not to leverage things as much as possible.

IMO, we have lost touch with our economy functions and it is truly hard to understand how it ticks anymore.

The silver lining, imo, is that I do not believe the Fed or Federal government will ever let a financial crisis get out of hand. If you know there is backstops at every mishap, why not take the risk to crazy levels.

Why should a bank even bother with risk management if they know they will be bailed out?

[Skatastrophy]

Why should a bank even bother with risk management if they know they will be bailed out?

They all just lost their jobs and their equity is worth $0?

[Pakuni]

The Wall Street Journal opinion page has figured out who's to blame for this mess.

[Jockey]

I bet they have.

Let me guess. It’s NOT the rich, greedy bank execs.

[JWags85]

Bank operators and investors have no upside in increased risk taking. The owners and investors are the ones that lost their shirts on this debacle and rightfully so.

The Fed backstopping the network effect of thousands of depositors losing their money is the rightful place for government to act. The depositors took no risk other than trusting a bank to hold their cash in a savings account.

Its really weird some of the uninformed takes Ive seen.  People calling the guaranteeing of deposits "a bank bailout" is not correct.  And also saying this "AGAIN only benefits the rich" is another argument completely not understanding whats going on.

I agree, F SVB and its execs and their risk mismanagement.  But if you're crowing that the startup that kept its funds at SVB and now would theoretically lose it all should also be screwed, you're just a bitter idiot.  A healthy company can't make payroll because the bank they deposited their funds at lost their money...yea, screw them!

Also, this mentality that "tech startup" means everyone involved is a Silicon Valley multi-millionaire/billionaire is a joke.

[MU Fan in Connecticut]

Its really weird some of the uninformed takes Ive seen.  People calling the guaranteeing of deposits "a bank bailout" is not correct.  And also saying this "AGAIN only benefits the rich" is another argument completely not understanding whats going on.

I agree, F SVB and its execs and their risk mismanagement.  But if you're crowing that the startup that kept its funds at SVB and now would theoretically lose it all should also be screwed, you're just a bitter idiot.  A healthy company can't make payroll because the bank they deposited their funds at lost their money...yea, screw them!

Also, this mentality that "tech startup" means everyone involved is a Silicon Valley multi-millionaire/billionaire is a joke.

Wasn't the primary reason this bank collapsed is simply because they had all their "eggs in one basket" and that's it?  Why does everyone try to complicate it.

[Frenns Liquor Depot]

Its really weird some of the uninformed takes Ive seen.  People calling the guaranteeing of deposits "a bank bailout" is not correct.  And also saying this "AGAIN only benefits the rich" is another argument completely not understanding whats going on.

I agree, F SVB and its execs and their risk mismanagement.  But if you're crowing that the startup that kept its funds at SVB and now would theoretically lose it all should also be screwed, you're just a bitter idiot.  A healthy company can't make payroll because the bank they deposited their funds at lost their money...yea, screw them!

Also, this mentality that "tech startup" means everyone involved is a Silicon Valley multi-millionaire/billionaire is a joke.

No matter what happens I think someone is going to wave the moral hazard flag.  I think Ken Griffen is picking up this round. 

There were a lot of absolutists in 07/08 and after the first domino went a lot of people became acutely aware that contagion is what you are trying to prevent.

I hope we learn our lesson (again) about how this was able to happen.

[Goose]

Wags

Bailout or no bailout is not my issue on the topic. I agree that the startups had to be protected and happy that it happened. My issue is we continue to see new risks being created and there is not much accountability out there. Guys that take big risks with other people's money do so while being paid crazy amounts of amount. Sure, they lose their jobs but after getting paid millions of dollars along the way.

It is a catch-22 because the startups should not be hurt because of the actions of SVB, but to do so the rules need to be modified yet again. The finance guys are amongst the smartest of the smart out there and they always find ways to double down on risk. As a rule, I admire that, but I admire it more when someone does not have a safety net. Worse to me, they did not have a safety net and one was provided, and they likely knew that would be the case.

IMO, reality has been lost in our how economy works, dating back to the financial crisis. At some point in time the Fed and Treasury needs to be ahead of the curve and not reacting after the fact. Unfortunately, they could never pay the smartest people to stay ahead of the curve and we will continue to see these types of events.

[Frenns Liquor Depot]

It is a catch-22 because the startups should not be hurt because of the actions of SVB, but to do so the rules need to be modified yet again.

Or maybe our govt and private sector shouldn’t have modified the rules that were in place.  Changing the regulations and then seeing banks go right up to that new limit is concerning. 

This isn’t a partisan comment either.  Multiple people involved in rolling it back.

At least the people that took this risk will lose in this case. 

[jesmu84]

Wags

Bailout or no bailout is not my issue on the topic. I agree that the startups had to be protected and happy that it happened. My issue is we continue to see new risks being created and there is not much accountability out there. Guys that take big risks with other people's money do so while being paid crazy amounts of amount. Sure, they lose their jobs but after getting paid millions of dollars along the way.

It is a catch-22 because the startups should not be hurt because of the actions of SVB, but to do so the rules need to be modified yet again. The finance guys are amongst the smartest of the smart out there and they always find ways to double down on risk. As a rule, I admire that, but I admire it more when someone does not have a safety net. Worse to me, they did not have a safety net and one was provided, and they likely knew that would be the case.

IMO, reality has been lost in our how economy works, dating back to the financial crisis. At some point in time the Fed and Treasury needs to be ahead of the curve and not reacting after the fact. Unfortunately, they could never pay the smartest people to stay ahead of the curve and we will continue to see these types of events.

This

[MU Fan in Connecticut]

Wags

Bailout or no bailout is not my issue on the topic. I agree that the startups had to be protected and happy that it happened. My issue is we continue to see new risks being created and there is not much accountability out there. Guys that take big risks with other people's money do so while being paid crazy amounts of amount. Sure, they lose their jobs but after getting paid millions of dollars along the way.

It is a catch-22 because the startups should not be hurt because of the actions of SVB, but to do so the rules need to be modified yet again. The finance guys are amongst the smartest of the smart out there and they always find ways to double down on risk. As a rule, I admire that, but I admire it more when someone does not have a safety net. Worse to me, they did not have a safety net and one was provided, and they likely knew that would be the case.

IMO, reality has been lost in our how economy works, dating back to the financial crisis. At some point in time the Fed and Treasury needs to be ahead of the curve and not reacting after the fact. Unfortunately, they could never pay the smartest people to stay ahead of the curve and we will continue to see these types of events.

In this case you might like the article from the current edition of Rolling Stone on the culture of fraud that became supercharged starting with the invasion of Iraq.

The Iraq War Unleashed an Age of Grift. We’re Still Living in It
This month marks the 20th anniversary of the U.S. invasion of Iraq, a giant con that heralded a thousand more
BY SPENCER ACKERMAN
Tim Sloan/AFP/Getty Images
MAR 5, 2023 9:00 AM

https://www.rollingstone.com/politics/politics-features/iraq-war-jim-mattis-theranos-elizabeth-holmes-1234679057/

[MUBurrow]

They all just lost their jobs and their equity is worth $0?

Yeah but as paranoid as it sounds, I don't think that is actually a sufficient deterrent. I would feel better if you saw other banks objecting to the Fed rescuing the depositors, because it would lay a marker for other banks and their clients to value conservative practices. But we're not hearing that because every other bank views this as "so but for the grace of God go I" because they know that they're willing to be just as risky to compete for customers/market share.

[Skatastrophy]

SVB doubled down on risk by... checking my notes here... buying US Treasuries.

They're not risk takers, they're just idiots.

Some pretty bad takes in this thread.

Yeah but as paranoid as it sounds, I don't think that is actually a sufficient deterrent. I would feel better if you saw other banks objecting to the Fed rescuing the depositors, because it would lay a marker for other banks and their clients to value conservative practices. But we're not hearing that because every other bank views this as "so but for the grace of God go I" because they know that they're willing to be just as risky to compete for customers/market share.

That would put hundreds of thousands of people out of work because their bosses chose the wrong savings account. Hundreds of companies unable to pay their bills, putting hundreds of other companies at risk. There would be a flight from small banks to mega banks, putting hundreds of small banks out of business, compounding the effect. The outcome would be a severe and immediate depression.

Just saying that I think the network effects of your suggestion are much bigger than you'd expect

[MUBurrow]

SVB doubled down on risk by... checking my notes here... buying US Treasuries.

They're not risk takers, they're just idiots.

Some pretty bad takes in this thread.

That's a pretty narrow view of risk for such a haughty response. They bought those treasuries so that they could offer higher rates on deposits to attract more tech and VC companies as clients. They abandoned diversification in favor of trying to outcompete other banks for a specific type of client.  That sounds pretty risky to me, even if it meant they got lopsided in a "safe" investment.

That would put hundreds of thousands of people out of work because their bosses chose the wrong savings account. Hundreds of companies unable to pay their bills, putting hundreds of other companies at risk. There would be a flight from small banks to mega banks, putting hundreds of small banks out of business, compounding the effect. The outcome would be a severe and immediate depression.

Just saying that I think the network effects of your suggestion are much bigger than you'd expect

Sure, I can meet you in the middle here, and rescuing depositors is probably the right call - but its a closer call for me than it is for you.  At some level of individual responsibility, those depositors were chasing the rates that SVB offered on the back of the above. 

[Skatastrophy]

That's a pretty narrow view of risk for such a haughty response. They bought those treasuries so that they could offer higher rates on deposits to attract more tech and VC companies as clients. They abandoned diversification in favor of trying to outcompete other banks for a specific type of client.  That sounds pretty risky to me, even if it meant they got lopsided in a "safe" investment.

Sure, I can meet you in the middle here, and rescuing depositors is probably the right call - but its a closer call for me than it is for you.  At some level of individual responsibility, those depositors were chasing the rates that SVB offered on the back of the above. 

You've never been an SVB customer I take it? Their value is/was 2 fold: White-glove service with deep startup/vc knowledge, and funds deployment while remaining liquid. Their rates are low-ish compared to the market. They were a full 0.5% below my operating account at CIBC. Full liquidity offered by both SVB and CIBC, and comparable rates for comparable balances.

Now, SVB allows(allowed) you to invest your funds in other professionally managed vehicles while they sit there (~4% rate, 0.5% expense ratio). SVB allows you to keep those funds 'fully liquid' by covering the few days it would normally take to get your money out. It's a pretty neat business model. https://www.svb.com/cash-sweep-global

They're not the most innovative bank in the world, they're just really good at catering to startups and VCs (and PE firms? idk much about that side of things).

Anyway. They didn't have higher deposit rates than most places. They were 'sort of competitive' rates. They just bought a ton of treasuries because they're dumb dumbs, not because they're risk takers imo.

Edit: I think I'm right based on personal (anecdotal) experience. I'm happy to be wrong, though. I don't know everything. Though I know that most the takes in this thread seem more like political grandstanding than anything. Some people here can't even differentiate between the market and the economy, but I'm trying to let that go.

[Hards Alumni]

Its really weird some of the uninformed takes Ive seen.  People calling the guaranteeing of deposits "a bank bailout" is not correct.  And also saying this "AGAIN only benefits the rich" is another argument completely not understanding whats going on.

I agree, F SVB and its execs and their risk mismanagement.  But if you're crowing that the startup that kept its funds at SVB and now would theoretically lose it all should also be screwed, you're just a bitter idiot.  A healthy company can't make payroll because the bank they deposited their funds at lost their money...yea, screw them!

Also, this mentality that "tech startup" means everyone involved is a Silicon Valley multi-millionaire/billionaire is a joke.

Agree.

[jesmu84]

Can anyone ELI5: big banks can now borrow "at par" instead of "market value"?

A couple more questions:

While making the depositors whole is the correct move in this situation, did the depositors themselves increase their own risk by putting so much in 1 account?

Can banks be engaging in risk by putting too much into Tbills considering changes in interest/inflation?

[JWags85]

Can anyone ELI5: big banks can now borrow "at par" instead of "market value"?

A couple more questions:

While making the depositors whole is the correct move in this situation, did the depositors themselves increase their own risk by putting so much in 1 account?

Bond prices fluctuate.  So depending on many factors, including risk and market volatility, the price of a bond thats worth $100 at maturation might not be currently worth $100.  It could be worth $90 or $105.  So by now borrowing at par, they are borrowing at actual maturation (par value) of the bonds as opposed to the current market value.  For the treasury bonds in question, that basically means they are not subject to fluctuation based on the potentials of Fed rate hikes/cuts.

As for the second question, I'm sure people like Burrow will disagree or the people Ive seen online who scoff at the idea that the companies did not spread their money over many banks to prevent this.  But I don't think so.  Thinking why not as a small business owner... (speaking generally, not specifically about those with SVB)

1) Hassle.  We have 3 banks accounts.  Our primary, an HSBC account in HK we use primarily for Chinese operations, and a seldom used BNP account we set up for something in Belgium years ago.  Even that is a headache, even just a deposit account.  We used to business bank with both Chase and a regional bank and we ended up closing Chase and consolidating for the reduction in hassle.  More accounts means more paperwork, more implications at tax time, money movements (cause of course you still can't move funds within a day or two without wire fees), etc...  And we're 20+ years old.  Not a startup that wants convenience/ease of use to draw down on their VC money as they worry about making their business work.

2) Service.  The more money you deposit with a bank, the better service you get.  Whether loan rates, deposit rates, refinancing, etc...  Thats the reason many smaller businesses prefer local or regional banks.  Cause their $500K in cash reserve or the in and out of revenue from a business that does $1/2/5MM a year is meaningful.  Whereas a big bank like Chase or Citi wouldn't care as much as those values are a rounding error to many of their corporate clients.

People tend to view this kind of stuff as they think of their personal banking.  Other than loans, who cares.  Hell, I used to have 5 checking accounts in my 20s.  It was a convaluted way of keeping my money organized and not tempt myself.  One for my student loan payments, one for my rent, one for my cash that would go to my CCs, etc...  But with business, its different. There is just so much more reporting and other things that go into everything that its just not worth it.

Also placing culpability on businesses for being attracted to favorable interest rates like its rolling the dice on options or emerging markets is ridiculous.  Its not like SVB was offering a 10% interest rate

[MUBurrow]

As for the second question, I'm sure people like Burrow will disagree or the people Ive seen online who scoff at the idea that the companies did not spread their money over many banks to prevent this.  But I don't think so.  Thinking why not as a small business owner... (speaking generally, not specifically about those with SVB)
1) Hassle. 
2) Service.
Also placing culpability on businesses for being attracted to favorable interest rates like its rolling the dice on options or emerging markets is ridiculous.  Its not like SVB was offering a 10% interest rate

I don't disagree.  At a 30k ft level, its just not realistic for very large depositors to stay under the FDIC limit everywhere.  Too much cash, too many different transactions, too much tax reporting, would require too many different accounts at too many institutions, the list goes on. 

What I do disagree with is that businesses have no culpability for the banks at which they decide to go over the FDIC limits.  I mentioned rates in an earlier post because I had read that elsewhere.  Even if I'm wrong about that (very possible) competition among banks is very real, and there are trade-offs for the benefits huge clients get from their banks of choice.  Security (probably correlative with size of the bank) is one of those benefits businesses can choose to prioritize.  Sure they can forego that in favor of rates, service, whatever - but the tradeoff for that is supposed to be risk.  To some degree, I think that bailing out depositors when their bank fails disincentivizes depositors from prioritizing security.  Does that outweigh the network effect and equitable factors at play here? Probably not, and that's why I said bailing out depositors is probably the right call here.  But its not like those depositors were randomly assigned to SVB - and its why I think the question of whether to make them whole is a complicated one.