Comment by treebeard901 | Hacker News Reader

Comment by treebeard901 | Hacker News Reader

An unexpected side effect of continued employment gains is that the employees expect to be paid... A series of bank failures puts payroll in doubt, and could quickly lock up the system with extreme inflation and a liquidity crisis.

More money will be created to bail out the banks which will cause more inflation and more inflation will mean higher rates to fight it, which could freeze credit more and draw down savings and so on, all of which leads to more job losses and liquidity problems. It's numerous things in a feedback loop and if the bank runs and failures continue to spread then it's going to put serious strain on a system that never fully recovered from 2008.

The reverse repo rates are kind of fascinating when you look at what happened around 2007 and where it is today.

Maybe SVB is an outlier and can be contained but another hidden issue is how much Fintech has worked its way into normal finance. There are many online only banks and companies like Chime and Cash app which could broaden a crash.

I really believe we are about to experience a financial crisis worse than anyone alive has experienced. It will be unique as well in that so many of these factors have never happened before or all simultaneously.

This also doesn't consider global reserve currency changes and ways for the world to conduct trade without the U.S. financial system being involved. All of this provided liquidity in the past, the safe haven effect and so on.

Or maybe a few banks will get bailed out and it will be no worse than the savings and loan crisis. The next few months should get interesting.

Oh and if that's not enough, there is the potential for Ukraine to do poorly in the summer and a potential conflict with China on the horizon. The U.S. could be in a two front war with near peer competitors at a debt to GDP ratio higher than at its highest point during WW2.

Quantitative easing kicked the bucket down the road but it seems to have been a band aid only making the disease worse in the long run.

(I hope this comment doesn’t age poorly.)

Lessons were learned following the 2008 financial crisis to sure up major banking risk exposure. Dodd Frank act was reversed a little but there are regulations and stress test simulations to improve banking system resilience if there is a cash or credit shortage. Who knows how valid some of the assumptions changes in these marginally higher interest rate times but we cannot be in pre-2008 credit swap nonsense.

SVB represents $200B assets and the customers are in large part revenue negative or growing startups. That doesn’t make it Ok but it cannot be representative of the greater economy. I’m sure fintech in personal banking, credit, and mortgages is far more popular than it was in the 2000’s but it by and large does not represent a majority or even large minority of retail banking.

My hope is there isn’t some sneaky financial engineering marvel in large corporate debt that this fringe instability snowballs and we find out we’re back in a state where the market is propped up by sketchy extrapolations of value estimates.

But I don’t think a bank run by a bunch of VCs or startups is a picture of the greater economic engine.

This bank was 40 years old. It’s leadership weren’t really just a bunch of startups.

I suspect your comment will age poorly. The solution to 2008 was to bail out failing institutions instead of letting them fail and be replaced with competent ones. If anything, since then, the institutions that created the 2008 crisis have consolidated market share, and gotten more and more regulations rolled back.

> consolidated market share,

True, BOC, JPM, Wells Fargo etc.

> and gotten more and more regulations rolled back

False, besides scaling back Dodd Frank please name 2 regulations removed from consumer investment banking or credit or mortgages.

Investment banking isn't what it was in the recent wild west days. Goldman Sachs fell from grace and stuff isn't fast and loose. Its not even cool anymore, investments are risk profile managed algorithmic ETFs. Its a well regulated industry, albeit better regulated in 2010 than now, but better than 2005. I'm sure there all kinds of shady things in IPOs and SPACs and private equity debt but that does not represent the greater consumer exposure public market.

Also, letting all large banks fold in 2008 would have been bonkers. There would not be a viable replacement in time to stop an all out dark ages. Those banks paid back loans plus interest in full. It was a systemic failure and Ben Bernanke stopped a depression and the system was improved instead of failing. Was is fair that wallstreet gets money from the Fed to stay afloat while people lost their homes? Not whatsoever, completely unfair. More could have been done to help out common people like we had in covid relief. But it was still the correct thing to do to keep the lights on. And the recovery period with QE was the longest stretch of growth thanks to the sugar rush of 0-interest debt that will play out to not be the best idea.

Anyway, I wasn't taking a shot at SVB leadership inferring they are naive startups. I'm saying that much of the SP500 are revenue generating profitable companies that do use debt but don't need recurring 20M funding rounds to make payroll. Startups are by and large not a good representation of the greater economy because they are supposed to represent new ideas. The banks customers are totally a risk and cash intensive with no physical capital. That is not representative of the economy.

That's all I'm trying to get at. The parent comment to mine is pretty doom & gloom and making ill founded parallels to 2008 and saying this will be even worse. I don't see how that follows. It does not make sense. We're entering a recession but that doesn't mean complete implosion.

There are a billion things I don't understand about the greater economy and globalization but I want to call out poorly formulated assertions because the narrative above is based in facts. Especially on this site where people give credence to web3 nonsense and trying to pose solutions financial problems that don't exist.

Its a not good situation and concerning. But I think there needs to be compartmentalization to understand what else is at stake.

>SVB represents $200B assets and the customers are in large part revenue negative or growing startups. That doesn’t make it Ok but it cannot be representative of the greater economy.

There are ~1900 publicly traded companies with a market cap over $1B. (NAMER) There are over 1000 privately owned companies with valuations over $1B. (NAMER?)

Writing off startups as not contributing to the economy (jobs, spending with vendors, etc.) is a harder to argue in 2023 than it would have been in the past.

This very well could be the beginning of a stall in the greater economic engine. Except this time it isn't necessarily fueled by failure of the underlying assets. Instead the underlying assets may fail because of the banks. Which could cascade into additional failures across the system.

I’m not trying to disparage or minimize startups. Merely pointing out that this bank’s business model does not represent the greater economy. I’m not putting down the banks customers saying that they are cash intensive risky businesses. That is the nature of a startup.

Also, 1B valuation in an asset bubble doesn’t really mean much with rosy assumptions on price to earnings ratios that is unproven. Unless that 1B company translates to public through an IPO that 1B valuation can be 10000B it really doesn’t yield any concrete value. Pre-market due diligence is a dark art and venture capital is operating on perverse incentives to value things. If you take out a large loan on your holdings in a 1B private asset light intellectual property light cash burning business then that person issuing the loan is irresponsible. Same thing with housing inflation, pointing to comps and estimated growth since that sale leads to inflated valuations. Except there aren’t many comps in a startup space and banks and credit unions are smarter at not giving out more money than they can collect back through a sale in the range of 300k-1M.

Sounds like there was too much deposits and the demand for returns made the bank choose a time risky purchase if interest rates rise. Then they did over a year. Then cash hungry customers made a run after rumors.

What does that mean for JPM and Wells Fargo and Blue Cross and Humana and GMC and Maersk? Not much because (I really hope) they’re not hedging their accounting in shares of a high risk VC regional bank.

Businesses need to adapt to higher interest rates and that alone is going to take the wind out of the sales of some speculative business models. The bank was underperforming on returns from their accounts so they chose an irresponsible bet.

In the US we need to collectively get of the cheap debt sugar rush and check the assumptions in what is viable growth and valuation. But that doesn’t mean the sky is falling because an AI healthcare startup cannot raise their next funding round.

The major banks should be good because they’re stress testing. The cheap money and every new company getting the cash to scale as has been the case for 10-15 years is likely behind us.

A point to emphasize on my other comment:

Valuation is not remotely related to GDP until there is an IPO.

Startup valuation on pre-profit businesses is dominated by the greater credit and bonds performance. Hopefully the impact radius of the inflated valuation coming back down to realistic levels is contained to private capital and not the whole country’s 401Ks.

"I really believe we are about to experience a financial crisis worse than anyone alive has experienced."

Ugh, this is like evangelicals constantly predicting the return of Jesus.

lol, so better time than ever to get in on the ground floor of my goldcoin ipo

the only gold-backed crypto coin

don't buy gold, we mint tokens and but the gold for you. somewhere.

1-1 goldcoins, avoid all out financial ruin

buy gold but as a hash

defi gold

jfc, goldcoin has been a thing for 13 years

[goldcoin 2010](https://goldcoin.com/about-us)

^^^ this is a terrible idea. if you're going to buy gold don't do it thru immutable public ledger contracts. If you cannot front the cost of one purchase unit then don't buy any. Fractioning the $USD/g cost of a commodity metal is not innovative.

A good asset to purchase during a banking meltdown would be something that would hold its value or increase in value. This could include things like gold, silver, or other precious metals.

> I really believe we are about to experience a financial crisis worse than anyone alive has experienced... Or maybe a few banks will get bailed out and it will be no worse than the savings and loan crisis.

I think right now it looks more like the latter (S&L crisis of the late 80s/ early 90s) than it does the Great Recession '08. Wasn't a huge impact in the economy at large from the S&L debacle. It will have an impact on tech so that this might look kind of like the tech wreck of the early aughts - again, while that impacted those of us who were in tech at the time it had little effect outside of tech. If it were to start spreading outside of tech to other sectors then I'll reconsider.

So, how many put options have you purchased against the financial sector? If the answer is zero, I don't think you really believe it that much.

The market can remain irrational longer than one can remain solvent and furthermore, this logic is either predatory; goading someone into doing something unwise; or altogether irrelevant (namely in that if one belieces the financial system is going to fall apart, why on Earth would you try to use the very system on whose destruction you're wagering to... Win?)

It's like talking to someone as a person with a gambling problem and dismissing them telling you the roulette ain't gonna help, and you replying Well, then bet on the roulette and make money.

I.e. you totally miss the God blessed point.

Reply on news.ycombinator.com