Here We Go Again. Wall St. Billionaires Demanding Bailouts Of Big Banks

[beagle9]

And the moral hazard in me says there isn't much the government should do. However...

There are going to be a lot of companies and their employees impacted by this event who did nothing risky other than having their capital tied up in a bank. Moreover, it's not like SVB was necessarily making reckless bets; they just made decisions about where to park their excess holdings that looked fine in one environment but turned out to be bad in different one all within the span of a year.

With that being said, a lot of the tech sector, their VCs, and investors broadly were fighting more stringent banking regulation and even pushed for leaner rules. I can't tell if any regulation had been proposed that would have addressed or prevented this outcome, which is the result of really unprecedented economic conditions.

But I do wonder when we're going to learn our lessons about creating these perfect pro-growth storms. We're forgetting the lessons of the 1920s and 30s. This is not the worst that can happen. The 2008 scenario - as bad as it was - isn't the worst that can happen. The worst that can happen is a situation in which there is massive unrealized risk that spreads far wider across all the major institutions that results in catastrophic losses that even the taxpayer can't bail out. We think it can't happen, but it can, especially as we are dealing with budding crises on multiple fronts.

Government's job is to insulate the Americans from these things, so is government inept, corrupted or what ?

 

[Care4all]

Everyone's stomachs should feel queasy tonite!!

Not if you only have $250k as a single, or $500k as a couple in there.....that's FDIC Covered.

The rules are the rules...businesses having more money than what is federally insured is and was, foolish and lazy.

 

[skews13]

Good post, and as you say it takes two to tango. The government is involved or it doesn't happen. People always protect their own, but like you say this shouldn't be political, but more about who keeps breaking the law, and who keeps letting them. I thought the government has former wall Street crooks that are serving time, otherwise working with them to stop this kind of stuff ?

The unadulterated version

WHY DID SILICON VALLEY BANK FAIL?​

Silicon Valley Bank was hit hard by the downturn in technology stocks over the past year as well as the Federal Reserve's aggressive plan to increase interest rates to combat inflation.

The bank bought billions of dollars worth of bonds over the past couple of years, using customers' deposits as a typical bank would normally operate. These investments are typically safe, but the value of those investments fell because they paid lower interest rates than what a comparable bond would pay if issued in today's higher interest rate environment.

Typically that's not an issue, because banks hold onto those for a long time — unless they have to sell them in an emergency.

But Silicon Valley's customers were largely startups and other tech-centric companies that started becoming more needy for cash over the past year. Venture capital funding was drying up, companies were not able to get additional rounds of funding for unprofitable businesses, and therefore had to tap their existing funds — often deposited with Silicon Valley Bank, which sat in the center of the tech startup universe.

So Silicon Valley customers started withdrawing their deposits. Initially that wasn't a huge issue, but the withdrawals started requiring the bank to start selling its own assets to meet customer withdrawal requests. Because Silicon Valley customers were largely businesses and the wealthy, they likely were more fearful of a bank failure since their deposits were over $250,000, which is the government-imposed limit on deposit insurance.

That required selling typically safe bonds at a loss, and those losses added up to the point that Silicon Valley Bank became effectively insolvent. The bank tried to raise additional capital through outside investors, but was unable to find them.

The fancy tech-focused bank was brought down by the oldest issue in banking: a good ol' run on the bank. Bank regulators had no other choice but to seize Silicon Valley Bank's assets to protect the assets and deposits still remaining at the bank.

WHAT HAPPENS NEXT?​

There are two large problems remaining with Silicon Valley Bank, but both could lead to further issues if not resolved quickly.

The most immediate problem is Silicon Valley Bank's large deposits. The Federal government insures deposits to $250,000, but anything above that level is considered uninsured. The Federal Deposit Insurance Corporation said insured deposits would be available on Monday morning. However the vast majority of Silicon Valley Bank's deposits were uninsured, a unique characteristic of the bank due to its customers being largely startups and wealthy tech workers.

At the moment, all of that money can't be accessed and likely will have to be released in an orderly process. But many businesses cannot wait weeks to get access to funds to meet payroll and office expenses. It could lead to furloughs or layoffs.

Two, there's no buyer of Silicon Valley Bank. Typically bank regulators look for a stronger bank to take on the assets of a failing bank, but in this case, another bank hasn't stepped forward. A bank buying Silicon Valley Bank could go a long way to resolving some of the problems tied with the money that startups can't get to right now.

IS THIS A SIGN THAT WE COULD REPEAT WHAT HAPPENED IN 2008?​

At the moment, no, and experts don't expect there to be any issues spreading to the broader banking sector.

Silicon Valley Bank was large but had a unique existence by servicing nearly exclusively the technology world and VC-backed companies. It did a lot of work with the particular part of the economy that was hit hard in the past year.

Other banks are far more diversified across multiple industries, customer bases and geographies. The most recent round of “stress tests” by the Federal Reserve of the largest banks and financial institutions showed that all of them would survive a deep recession and a significant drop in unemployment.

However there might be economic ripple effects in the Bay Area and in the technology start up world if the remaining money can't be released quickly.

 

[Meister]

The fact that Silicon Valley Bank (SVB) has been seized by federal regulators is a big deal and will have a huge impact on Silicon Valley’s startup scene. They are the financial institution for every new tech company in Northern California.

Something is really rotten at SVB. The bank has $209 billion in assets and $175.4 billion in deposits, yet it collapsed because it failed to raise a mere $1.75 billion in new financing. The consequences should ripple across a significant segment of the economy, particularly in the San Francisco-San Jose region.

But whatever, shit happens, right? Economic sectors are disrupted all the time, and this one, at least, should hit a more affluent crowd. We’re not talking the destruction of manufacturing in small towns all across America, and Silicon Valley is resilient enough to bounce back. It always does.

Except this isn’t small-town America. This is some of the wealthiest, most powerful interests in our country. And if there’s one thing wealthy financial interests love more than anything else, it’s privatizing profits but socializing the risks. So like clockwork …

Here we go again: Wall Street billionaires demanding public bailouts of failed banks

UPDATE: Friday, Mar 10, 2023 · 8:19:42 PM +00:00 · kos Just watch, all the usual suspects will make the same f’n arguments: They can f’ themselves. I am so livid, I am still throwing shit around my house. Sorry if you come into my house and see the...

www.dailykos.com

No. Hell no. Fuck no. Eat shit and fucking die no.

I guess the woke mentality doesn't bode well in banking. I wonder what else will fail because of the woke mentality in the economy?

 

[Meister]

Not if you only have $250k as a single, or $500k as a couple in there.....that's FDIC Covered.

The rules are the rules...businesses having more money than what is federally insured is and was, foolish and lazy.

Thing is, they can't get it all out at once....maybe up to 75%, then it's a waiting game.

 

[B. Kidd]

I guess the woke mentality doesn't bode well in banking. I wonder what else will fail because of the woke mentality in the economy?

Yupp!
They were more worried about the climate when they should have paid attention to their books!!

 

[B. Kidd]

Thing is, they can't get it all out at once....maybe up to 75%, then it's a waiting game.

Allegedly the bank has assets it can later sell to make up the difference.

 

[Delldude]

Meh, according to my research it's your own ilk doin' the askin'......Care to flesh that one out?

That's the same clowns who bought the White House for Biden.

 

[DudleySmith]

So you are a leftist... Glad to know that. So when Trump was using the tax codes in the legal ways that the tax codes were written and presented, then you leftist went berserk when trying to get him on anything you could come up with.

So Trump told you all - "hey, change the laws and codes if you don't want people to use them in the ways that they are written".

lol all you right wingers call anybody who doesnt drink your snake oil 'leftists;, meanwhile you bail out sniveling billionaires, crooked bankers, sleazy swindlers all with govt. money. You're the commies, but you think if you blather a lot of ideological rubbish that your Party never actually practices you're fooling everybody. lol

And of coruse you won't honestly respond to what I said. because you really do think finacial swindlers have no obligation to conduct financial businesses honestly and have every right to steal and plunder their own businesses and then hide behind 'Da Guvmint Made Me Do It!'. And you will bail then out yet again, no matter how many trillions they pocket and leave for the taxpayers and swindled customers to eat.

Your Hero Phil Gramm paved the way. Sucks when there is all that evidence out there, that's why you can barely beat loons like Biden and AOC in elections; you're as dishonest as they are. You're even more left wing than them in terms of dollars wasted.

 

[DudleySmith]

And the moral hazard in me says there isn't much the government should do

Well the fact is the govt. and these financial swindlers are the same people; all the regulators come from the industires they allegedly regulate, and they go back to work for them after they do a stint as regulators. They are all the same people, business people and bankers. They have the same morals, i.e. none to speak of.

 

[DudleySmith]

Allegedly the bank has assets it can later sell to make up the difference.

They leverage them far beyond what the equity was ever worth or ever going to be worth; that's why they go bankrupt. They keep all the profits and bonuses they paid themselves, and the bankruptcy courts are left with the 2 cents on the dollar in equities left over to split with the victims. So no, they are never going to 'make up the difference later', they just print more money to make up the difference that evaporated into nothing.

 

[B. Kidd]

They leverage them far beyond what the equity was ever worth or ever going to be worth; that's why they go bankrupt. They keep all the profits and bonuses they paid themselves, and the bankruptcy courts are left with the 2 cents on the dollar in equities left over to split with the victims. So no, they are never going to 'make up the difference later', they just print more money to make up the difference that evaporated into nothing.

Equities, as you put it, are not necessarily asset values.
We'll see how this shakes out. Rumor has it that this bank's assets have already started selling today.

 

[DudleySmith]

Equities, as you put it, are not necessarily asset values.
We'll see how this shakes out. Rumor has it that this bank's assets have already started selling today.

That's my point. They grossly over value the equity, then borrow against it, meanwhile paying themselves big bonuses and dividends while the market booms. Then when the bubbles burst, they walk away and leave the losses to others to eat.

They should also go after the shareholders' dividends and bonuses the execs paid themselves as well if they wanted to be fair and honest.

 

[Circe]

From the Wall Street Journal this afternoon 3/12: I'd give you a link but they have a killer paywall.

Silicon Valley Bank Collapse Becomes Campaign Topic as GOP Warns Against Bailout​

Republican presidential hopefuls argue against taxpayer-funded assistance for those who suffer losses​

The sudden collapse of Silicon Valley Bank has set the stage for the latest fight over the role of the federal government in the financial sector, with Republican 2024 presidential hopefuls threatening to make any hint of a taxpayer-funded bailout a campaign issue.

The issue’s clout and staying power will likely depend heavily on whether regulators are able to successfully shield the banking system from wider fallout, and by how losses are dealt with for depositors with holdings above the Federal Deposit Insurance Corp.’s $250,000-protection limits.

Nikki Haley, the former South Carolina governor and United Nations ambassador running for the GOP nomination, was among the first in the still-emerging GOP field to call for no taxpayer exposure to the bank’s failure and by Sunday was already soliciting online campaign contributions on the topic.

“Taxpayers should absolutely not bail out Silicon Valley Bank,” she said in a statement. “Private investors can purchase the bank and its assets. It is not the responsibility of the American taxpayer to step in. The era of big government and corporate bailouts must end.”
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Nikki Haley is getting pretty fun; she sure is pulling a Trump in her tactics.

It looks like Yellen knows there is serious political pressure against a bail-out (by making the depositors all whole, even the 90% of uninsured monies).

Of course, if banks start falling like dominoes, God forbid, a lot of people may change their minds very quickly.

 

[Circe]

That's my point. They grossly over value the equity, then borrow against it.

I thought I read that what happened is that the assets fell drastically, during the rapid Powell interest rise. So when SVB needed to sell them fast, they didn't have nearly enough value.

But what I think REALLY happened is that Peter Thiel was transferring money in from other banks on Wednesday, smelled a rat when there were unspecified "problems and delays" and instantly bailed out his entire account down to the last penny. Which resulted in bank collapse.

 

[B. Kidd]

From the Wall Street Journal this afternoon 3/12: I'd give you a link but they have a killer paywall.

Silicon Valley Bank Collapse Becomes Campaign Topic as GOP Warns Against Bailout​

Republican presidential hopefuls argue against taxpayer-funded assistance for those who suffer losses​

The sudden collapse of Silicon Valley Bank has set the stage for the latest fight over the role of the federal government in the financial sector, with Republican 2024 presidential hopefuls threatening to make any hint of a taxpayer-funded bailout a campaign issue.

The issue’s clout and staying power will likely depend heavily on whether regulators are able to successfully shield the banking system from wider fallout, and by how losses are dealt with for depositors with holdings above the Federal Deposit Insurance Corp.’s $250,000-protection limits.

Nikki Haley, the former South Carolina governor and United Nations ambassador running for the GOP nomination, was among the first in the still-emerging GOP field to call for no taxpayer exposure to the bank’s failure and by Sunday was already soliciting online campaign contributions on the topic.

“Taxpayers should absolutely not bail out Silicon Valley Bank,” she said in a statement. “Private investors can purchase the bank and its assets. It is not the responsibility of the American taxpayer to step in. The era of big government and corporate bailouts must end.”
*********************************************************************************

Nikki Haley is getting pretty fun; she sure is pulling a Trump in her tactics.

It looks like Yellen knows there is serious political pressure against a bail-out (by making the depositors all whole, even the 90% of uninsured monies).

Of course, if banks start falling like dominoes, God forbid, a lot of people may change their minds very quickly.

I don't think there will be a contagion.
Mark Cuban only had 10 million or less in it, and of course he's bitchin' for a total bailout! 10 million to Cuban ain't really shit. But he's willing to fuck anyone for relative chump change!!

 

[Circe]

I don't think there will be a contagion.
Mark Cuban only had 10 million or less in it, and of course he's bitchin' for a total bailout! 10 million to Cuban ain't really shit. But he's willing to fuck anyone for relative chump change!!

Maybe not --- I just this minute read they have sold some of the bank assets already ----

Of course, that could be just propaganda. I am a little surprised how much sound and fury is on the Internet, lots of scaremongering. I do think ANYthing could happen and we should just wait and see what does. I'm expecting to spend tomorrow in front of the TV.

 

[Toddsterpatriot]

the govt. jump in to save the most well connected criminals with trillions in bailouts, which we're still paying for, by the way.

The bailouts were repaid. The US Treasury made huge profits.

 

[Toddsterpatriot]

Tell us who hid the risky loans among good paper until nobody could trace them?

Who forced Fannie and Freddie to buy so many risky loans?

 

[Toddsterpatriot]

lol it;s hilarious how the right is suddenly complaining about deregulation and lack of govt. oversight when their beloved crooks take advantage of the easing of regs and proceed to steal the public blind. It's never the fault of the criminals, cuz they're 'capitalists n stuff, and know what they're doing'. No, they're thieves, and they know exactly what they're doing.

Link?