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Comment by stingrae | Hacker News Reader

> Even if the extremely unlikely scenario plays out and companies are unable to make payroll, employees are very unlikely to walk out, it would make an inconvenient situation (no pay) much worse (terminated) in an already challenging economic climate.

I don't understand how you can say this is an unlikely scenario. It is very likely, because a large number of startups are using one bank and that 250k won't cover much of their burn rate.

It also puts you in a terrible position to raise bridge rounds and other financing. Every investor and lender isn't incentivized to give good terms.

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You’re conflating the amount insured and the amount that will be recovered. SVB has failed as a bank, it hasn’t failed as a place to have money. The money still exists, and while there’s a hole created by recovering immediate access to that money, it represents a very small haircut — maybe a few percentage points for each customer.

sure it may (in the long term) be a few percentage points of a loss. The problem is the timeline on which you get access to it. If you are a larger company, 250k won't cover much of your payroll. No banks are going to rush to buy these low interest securities unless they get a steep discount.

A company spending millions of dollars per year on payroll will have the relationships necessary to weather a storm like this. SVB made some very poor investment decisions but they didn’t light the money on fire: it’s not going to take years to liquidate. There is huge upside opportunity for buyers of assets from a distressed bank: the assets are worth less than what SVB paid (hence the crisis) but are not worthless. We will have to wait and see, and perhaps my optimism is naive, but I struggle to see a situation in which these remaining assets can’t be liquidated in the coming weeks. Even pre-crisis, SVB held less than $200bn — that’s a small amount of money in the context of the US banking system. Apple alone has, what, $100bn?

The FDIC has taken control of the bank. In their last bond offering SVB lost 1.8bn$ from a 21bn$ sale. 8.5% seems like more than a haircut... and 8+% to get the money you need now is a steep cut that will result in larger consequences.

8% might seem like a stubbed toe, but these are _bonds_. You aren't suppose to lose anything. 8% inflation, 8% from bank failure and add-on the additional losses from non-bond related issues... S&P500 at 1% for the year but from mid-2021 it is down nearly 10%.

8% represents, what, a month of runway for most startups? That’s not an extinction level event, it’s a stubbed toe.

> but these are _bonds_. You aren't suppose to lose anything.

If you hold them to maturity. If you sell them early, not so much.

Huh? Bond prices fall in response to rising rates, and it’s pretty clear why. The mechanism is straightforward.

The money exists sure, but wages have to be paid in hard cash, not treasury bonds. The cash does not exist.

> The money still exists

No, part of it disappeared when the long-term bonds were sold for a loss. That money hole is why SVB was closed today.

> It also puts you in a terrible position to raise bridge rounds and other financing. Every investor and lender isn't incentivized to give good terms.

Why wouldn't a lender lend in this scenario? It's almost zero risk.

It wouldn't be a good negotiating position if there was no other lenders, but there would presumably be plenty of lenders interested in providing a "small" bridging loan in a situation like this. And those lenders will have to compete.

> Why wouldn't a lender lend in this scenario? It's almost zero risk.

it's not

you can't predict what the unwinding of SVBs positions will produce in 6 months time (or however long it takes)

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