Comment by dragontamer | Hacker News Reader

Comment by dragontamer | Hacker News Reader

Parent Full thread

Why?

My money at VMFXX is almost entirely composed of safe Fed Repos with average maturity of 2-weeks. VUSXX is mostly Treasury Bills, again of maturity averaging like 2-weeks. My money at SWVXX is composed of AAA-rated bank notes, of similar 2-weeks-ish maturity average.

The idea of a bank, like SIVB, being composed of largely 30-year mortgages and 10Y or 30Y Treasury Bonds is insane. The bank deserves to die after taking such high duration risks. There should be _NO_ bailout. I can barely believe a bank was so stupid to keep customer deposits backed by something so risky.

----------

We've been preparing our financial system for the last 15 years (since 2008) for the next financial storm. We've got "stress tests" to see that various banks have severed contamination between each other, at least in theory. Lets see how good our preparations have held up.

No point giving up and bailing things out before we've even tested our new financial system regulations. We can afford to let some banks go under. Only if the contagion has a chance of spreading everywhere should we consider the last-ditch effort of a bailout.

He is suggesting that the Fed/FDIC make depositors whole, not necessarily bail out the bank.

There is a good chance that depositors will be made whole regardless, but even if it does require some intervention it is probably worth it to prevent this from spreading to other banks. There are very valid reasons why certain organizations would need to keep more than $250k in an account, and if everyone of them started transferring their money to a handful of the safest institutions, then things could quickly get out of control.

I couldn’t give two shits about banks that go under. The businesses that concern me are the ones who lose deposits.

They won't lose deposits except insofar as they decided it was OK to exceed the 250k limit for FDIC insurance. And in deciding to do that, they were deciding to take a risk and got burned by it -- but it was a risk they willingly took on.

Asking honestly - if you just got $100m wired to your account from a Series C, what's the right way to protect your cash?

Honest answer? I don't know. But when my business was in a similar position (not from VCs and only about 25% of that amount), my business partner, attorney, and accountant sure did, so I know it can be done. IIRC, it was a fairly complex mix of different things. There certainly wasn't a single place that held all of the money.

I know that this sort of problem isn't new, and I know that there are a variety of ways to mitigate the risk to acceptable levels. I don't think you can ever completely eliminate risk.

Dealing with large amounts of money is very complex and really requires experts to do right. I'm an engineer, not a money expert. Your question is better aimed at a subject matter expert.

But my underlying point isn't even that these companies did the wrong thing. Only that they took a risk -- and starting a business is itself taking a risk. That's not necessarily a bad thing.

But when you take a risk, you're (obviously) taking a risk that the money will be lost. That's truly an unfortunate thing, but everyone knows the rules of the game.

In jest, this comment reminds be of that article about "The Gods On Hacker News" [1]. A random user just typed "when I had about $25mn in my business account..." like that's nothing, lol.

1- https://www.riknieu.com/the-gods-on-hackernews/

I gotcha. But I never had anything like $25mil. The business did. It's a rather significant difference. Even there, that wasn't profit that could be spent freely. The majority of it was already spoken for to cover expenses.

I learned yesterday about CDARS.

These spread your deposits over (up to) thousands of banks, keeping each account below FDIC insurance limits. You can choose demand deposit accounts, or CDs or money market accounts if you want interest.

All accounts roll up into a single bank statement from your primary bank.

There's a couple of services that will split up your deposit into 20-different banks, so that you achieve $5 Million FDIC insurance rather than just $250,000.

Also, if any particular bank fails, you only risk 1/20th of your cash.

EDIT: I never managed $100M before however. Maybe that stops being a potential plan at these sizes.

It is not insane at all. Banks match expected duration of their assets and liabilities. This bank made a number of errors and was caught in a classic liquidity squeeze. Not the first and won't be the last.

Reply on news.ycombinator.com