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 Post subject: Re: Does anyone care about the economy?
PostPosted: Sun March 12, 2023 3:45 pm 
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tragabigzanda wrote:
From NYT. Basically what I said a few posts back but told more elegantly:

Quote:
But what brought S.V.B. down wasn’t lending to risky start-ups, or gambling on sketchy crypto coins, or some other ill-considered tech scheme. It was an old-fashioned bank run, set off back in 2021 by a series of old-fashioned bad decisions.

That year, the stock market boomed, interest rates sat near zero, and money was flooded into the tech sector. Many start-ups parked their cash at Silicon Valley Bank, and the bank, in turn, took that money and invested it, including in a bunch of long-dated bonds. Those investments looked relatively safe at the time but became riskier last year as interest rates rose and the bonds lost some of their value. This year, as tech investment slowed and start-ups pulled cash out of the bank to pay their expenses, S.V.B. needed to sell some of its bonds at a loss and seek fresh capital to meet its obligations.

The bank may have been able to survive all of this, but when it explained to customers (badly) what had happened, some of those customers got worried that the bank was in trouble. Venture capital investors got spooked, and told their portfolio start-ups to withdraw any money they had sitting at S.V.B. Other customers saw that happening, and they panicked, too. Voilà, bank run.


NYT needs to LIGMA

SVB had a funding mismatch but there is nothing ‘good ol fashioned’ about catering almost exclusively to cash-burn/zero-revenue/speculative tech startups

the catalyst was a concentrated client base burning through cash

SVB deposits rose fast $50B to $200B in like 2 years - they fell fast too, which was the problem

Banks have limited options to reinvest, treasuries are generally the prudent option relative to stocks (banks never buy) and more illiquid assets like asset backed securities

This is just the latest manifestation of the 2021 tech bubble bursting

now regulators need to work overtime to chill everyone out bc the agenda setting media on the warpath for clicks is gonna perpetuate a false narrative that this problem applies to every bank

it doesn’t

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 Post subject: Re: Does anyone care about the economy?
PostPosted: Sun March 12, 2023 3:52 pm 
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96583UP wrote:
Bi_3 wrote:
I have yet to see a rational explanation why any account over the FDIC limit should be covered by federal taxpayers.


simply to stem fear of broader runs on regional banks

we can thank twitter for this

some bank runs are rational but the media need to stfu and stop enabling people to be afraid they will lose their deposits everywhere

SVB was an isolated case with depositors (early stage tech) burning through cash

but if every dope on the street becomes afraid their money is not safe and runs to withdraw then we create the adverse event which should otherwise not come to fruition

All true. Other things unique to this event:

-SVB put their cash into long-term bonds, which devalued as interest rates began to rise. Their attempt to get out of the bonds to free up cash seems to be viewed as generally smart (by people smarter than me), save for the fact that:

-The culture of their customer base is uniquely online all the time. So fears probably spread much faster than if their customer base were, say, doctors and real estate people and the like.

One take I’ve seen a few times is that this is an example of baking regulation doing exactly what it’s supposed to do. I’d like to believe this but I’ll wait to see how the sale I’d SVB’s assets plays out


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 Post subject: Re: Does anyone care about the economy?
PostPosted: Sun March 12, 2023 5:45 pm 
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It does seem like you'd have to be crazy to put big money into any regional bank after this. But maybe that's what the government wants.

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 Post subject: Re: Does anyone care about the economy?
PostPosted: Sun March 12, 2023 6:01 pm 
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BurtReynolds wrote:
It does seem like you'd have to be crazy to put big money into any regional bank after this. But maybe that's what the government wants.

I think maybe money market accounts have a higher degree of safety due to treasury backing? If so, and given their short timelines, it seems like those and short-term bonds are the way to go.


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 Post subject: Re: Does anyone care about the economy?
PostPosted: Sun March 12, 2023 9:00 pm 
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tragabigzanda wrote:
BurtReynolds wrote:
It does seem like you'd have to be crazy to put big money into any regional bank after this. But maybe that's what the government wants.

I think maybe money market accounts have a higher degree of safety due to treasury backing? If so, and given their short timelines, it seems like those and short-term bonds are the way to go.



I read earlier that SVB is very unique in it's lending relationships with startups and VCs that were much looser than any other sizable bank and that like ~75% of assets were deposited in the last three years. I doubt there are many other banks are like that

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 Post subject: Re: Does anyone care about the economy?
PostPosted: Sun March 12, 2023 9:32 pm 
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Bi_3 wrote:
tragabigzanda wrote:
BurtReynolds wrote:
It does seem like you'd have to be crazy to put big money into any regional bank after this. But maybe that's what the government wants.

I think maybe money market accounts have a higher degree of safety due to treasury backing? If so, and given their short timelines, it seems like those and short-term bonds are the way to go.



I read earlier that SVB is very unique in it's lending relationships with startups and VCs that were much looser than any other sizable bank and that like ~75% of assets were deposited in the last three years. I doubt there are many other banks are like that

That would be insane.

I’m also really curious about their debt structure with starts ups. Assuming you’ve got a startup with some traction, like post-series A, and they’ve already incurred some bridge loans/venture debt from their VC funds, then what the hell does SVB consider collateral on a loan to a startup?


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 Post subject: Re: Does anyone care about the economy?
PostPosted: Sun March 12, 2023 9:53 pm 
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tragabigzanda wrote:
Bi_3 wrote:
tragabigzanda wrote:
BurtReynolds wrote:
It does seem like you'd have to be crazy to put big money into any regional bank after this. But maybe that's what the government wants.

I think maybe money market accounts have a higher degree of safety due to treasury backing? If so, and given their short timelines, it seems like those and short-term bonds are the way to go.



I read earlier that SVB is very unique in it's lending relationships with startups and VCs that were much looser than any other sizable bank and that like ~75% of assets were deposited in the last three years. I doubt there are many other banks are like that

That would be insane.

I’m also really curious about their debt structure with starts ups. Assuming you’ve got a startup with some traction, like post-series A, and they’ve already incurred some bridge loans/venture debt from their VC funds, then what the hell does SVB consider collateral on a loan to a startup?


Trying to find the chart, but this one is similar: https://seekingalpha.com/article/456538 ... ow-up-risk

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 Post subject: Re: Does anyone care about the economy?
PostPosted: Sun March 12, 2023 10:15 pm 
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BurtReynolds wrote:
It does seem like you'd have to be crazy to put big money into any regional bank after this. But maybe that's what the government wants.


some clients ‘cant’ move - e.g. if you are a small corporate customer, JPMorgan won’t service you at all, or if yes, it won’t be at the same level of service as a regional will.

also, a lot of regional commercial banking customers don’t want to move - they have relationships with their locally-based small and mid-size banks that grow and develop over decades and they like them.

but more to your original point- I would not be surprised to see regional banks bump up their deposit rates soon to entice people thinking of leaving to stay

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 Post subject: Re: Does anyone care about the economy?
PostPosted: Mon March 13, 2023 2:19 am 
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Nothing to see here:

Quote:
Federal banking regulators took aggressive new actions aimed at preventing depositors in failed Silicon Valley Bank from losing money — and to prevent its downfall from unleashing a nationwide run across the banking system.


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 Post subject: Re: Does anyone care about the economy?
PostPosted: Mon March 13, 2023 3:35 am 
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elliseamos wrote:
Nothing to see here:

Quote:
Federal banking regulators took aggressive new actions aimed at preventing depositors in failed Silicon Valley Bank from losing money — and to prevent its downfall from unleashing a nationwide run across the banking system.


Some of the Tech Bros have been doing their damnedest to increase contagion. This is the Fed surrendering to them.

Wish there was a way that every company could make payroll while the loud assholes have to sweat for a couple of weeks to get access to their accounts.


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 Post subject: Re: Does anyone care about the economy?
PostPosted: Mon March 13, 2023 12:22 pm 
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simple schoolboy wrote:
elliseamos wrote:
Nothing to see here:

Quote:
Federal banking regulators took aggressive new actions aimed at preventing depositors in failed Silicon Valley Bank from losing money — and to prevent its downfall from unleashing a nationwide run across the banking system.


Some of the Tech Bros have been doing their damnedest to increase contagion. This is the Fed surrendering to them.

Wish there was a way that every company could make payroll while the loud assholes have to sweat for a couple of weeks to get access to their accounts.



That the same people who have been saying 'trust us to make AI safe' were willing to engage in brinkmanship with another 2008 style collapse to save their millions should be a clear sign of what they think of the rest of world.

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 Post subject: Re: Does anyone care about the economy?
PostPosted: Mon March 13, 2023 12:28 pm 
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tragabigzanda wrote:
The bank may have been able to survive all of this, but when it explained to customers (badly) what had happened, some of those customers got worried that the bank was in trouble. Venture capital investors got spooked, and told their portfolio start-ups to withdraw any money they had sitting at S.V.B. Other customers saw that happening, and they panicked, too. Voilà, bank run.

I haven't read too much about this, hopefully I'll get a chance in the next couple of days, but the bolded is what strikes me as very odd. VC investors understand the difference between illiquidity and insolvency and would understand that to sell older bonds right now would require taking a loss. Nothing about that indicates that a bank failure is imminent. I don't want to go full conspiracy theory and I don't know what to make of it but I'm very interested to follow the money and see who comes out ahead on this whole thing. This just feels off to me.

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 Post subject: Re: Does anyone care about the economy?
PostPosted: Mon March 13, 2023 1:32 pm 
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4/5 wrote:
tragabigzanda wrote:
The bank may have been able to survive all of this, but when it explained to customers (badly) what had happened, some of those customers got worried that the bank was in trouble. Venture capital investors got spooked, and told their portfolio start-ups to withdraw any money they had sitting at S.V.B. Other customers saw that happening, and they panicked, too. Voilà, bank run.

I haven't read too much about this, hopefully I'll get a chance in the next couple of days, but the bolded is what strikes me as very odd. VC investors understand the difference between illiquidity and insolvency and would understand that to sell older bonds right now would require taking a loss. Nothing about that indicates that a bank failure is imminent. I don't want to go full conspiracy theory and I don't know what to make of it but I'm very interested to follow the money and see who comes out ahead on this whole thing. This just feels off to me.



The ability to in-real-time induce a bank run is somewhat new, right? Silicon Valley's greatest achievement is understanding how to scale, so maybe that's why it seems off, because 15 years ago we couldn't have > $42B in regional bank outflows demanded as the result of group chat. Not entirely different than trying to buy Taylor Swift tickets.


Edit: But if what you are implying is that they came to believe the VC->startup pipeline was drying up as a result of broader shifts in the economy and they figured they had a way out by tanking SVB, that seems a bit farfetched. Keeping that secret would be impossible.

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 Post subject: Re: Does anyone care about the economy?
PostPosted: Mon March 13, 2023 2:07 pm 
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4/5 wrote:
tragabigzanda wrote:
The bank may have been able to survive all of this, but when it explained to customers (badly) what had happened, some of those customers got worried that the bank was in trouble. Venture capital investors got spooked, and told their portfolio start-ups to withdraw any money they had sitting at S.V.B. Other customers saw that happening, and they panicked, too. Voilà, bank run.

I haven't read too much about this, hopefully I'll get a chance in the next couple of days, but the bolded is what strikes me as very odd. VC investors understand the difference between illiquidity and insolvency and would understand that to sell older bonds right now would require taking a loss. Nothing about that indicates that a bank failure is imminent. I don't want to go full conspiracy theory and I don't know what to make of it but I'm very interested to follow the money and see who comes out ahead on this whole thing. This just feels off to me.

I mean this sincerely: I have no faith that the average LP understands the difference between insolvency and illiquidity. The fund’s general partners / managing partners certainly do. I think there’s probably a lot of LPs out there who are getting a lesson in banking 101 this week.


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 Post subject: Re: Does anyone care about the economy?
PostPosted: Mon March 13, 2023 3:23 pm 
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tragabigzanda wrote:
4/5 wrote:
tragabigzanda wrote:
The bank may have been able to survive all of this, but when it explained to customers (badly) what had happened, some of those customers got worried that the bank was in trouble. Venture capital investors got spooked, and told their portfolio start-ups to withdraw any money they had sitting at S.V.B. Other customers saw that happening, and they panicked, too. Voilà, bank run.

I haven't read too much about this, hopefully I'll get a chance in the next couple of days, but the bolded is what strikes me as very odd. VC investors understand the difference between illiquidity and insolvency and would understand that to sell older bonds right now would require taking a loss. Nothing about that indicates that a bank failure is imminent. I don't want to go full conspiracy theory and I don't know what to make of it but I'm very interested to follow the money and see who comes out ahead on this whole thing. This just feels off to me.

I mean this sincerely: I have no faith that the average LP understands the difference between insolvency and illiquidity. The fund’s general partners / managing partners certainly do. I think there’s probably a lot of LPs out there who are getting a lesson in banking 101 this week.

Case in point:

https://www.bostonglobe.com/2023/03/13/ ... y-answers/

You've got to know your regs to be a GP/MP. All it takes to be an LP is accredited investor status.


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 Post subject: Re: Does anyone care about the economy?
PostPosted: Mon March 13, 2023 3:54 pm 
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tragabigzanda wrote:
4/5 wrote:
tragabigzanda wrote:
The bank may have been able to survive all of this, but when it explained to customers (badly) what had happened, some of those customers got worried that the bank was in trouble. Venture capital investors got spooked, and told their portfolio start-ups to withdraw any money they had sitting at S.V.B. Other customers saw that happening, and they panicked, too. Voilà, bank run.

I haven't read too much about this, hopefully I'll get a chance in the next couple of days, but the bolded is what strikes me as very odd. VC investors understand the difference between illiquidity and insolvency and would understand that to sell older bonds right now would require taking a loss. Nothing about that indicates that a bank failure is imminent. I don't want to go full conspiracy theory and I don't know what to make of it but I'm very interested to follow the money and see who comes out ahead on this whole thing. This just feels off to me.

I mean this sincerely: I have no faith that the average LP understands the difference between insolvency and illiquidity. The fund’s general partners / managing partners certainly do. I think there’s probably a lot of LPs out there who are getting a lesson in banking 101 this week.

I don't doubt that. My comment was specific to the bolded saying "Venture capital investors got spooked." Maybe I misinterpreted this but to me it implied that the VC investors are the ones who panicked. It seems to me than any VC investor would understand liquidity/solvency, etc. I understand the startups rushing to withdraw when their VC daddies tell them to, I just don't understand why the VC people would panic. I'm probably misunderstanding. I think later today I'll have time to dive into this. I better before my Econ class tomorrow, anyway.

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 Post subject: Re: Does anyone care about the economy?
PostPosted: Mon March 13, 2023 9:04 pm 
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 Post subject: Re: Does anyone care about the economy?
PostPosted: Mon March 13, 2023 9:20 pm 
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:haha:

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 Post subject: Re: Does anyone care about the economy?
PostPosted: Mon March 13, 2023 9:25 pm 
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yeah that was terrific, and basically the whole story.


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 Post subject: Re: Does anyone care about the economy?
PostPosted: Tue March 14, 2023 5:35 am 
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That Tech dude Republican Presidential candidate has been very anti-bailout, but I feel like leading with "tech startups can weather this" is a bit less convincing than, "here's a list of banks that were allowed to fail, where the depositors beyond the insurance limit got between 80 and 90% of their money back." If SVB is a special case, why is that so?


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