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Comment by ericb | Hacker News Reader

> Pretty clear who this system serves.

A bailout is when they save the bank owners. The SVB owners lost the bank. There's no happy result for them.

If you had your deposit for the home in Silicon Valley Bank, it would be serving you. It would probably suck if you saved that up for retirement or a mortgage, and lost it. In that scenario would you be saying how great it is because it showed the government really served you?

Bank runs are a real thing that could ruin you wherever you're banking. If the large accounts realize that that smart move is to pull their money every time Peter Thiel yells fire, because they are unprotected, other banks can go under too--maybe yours, or maybe the bank where your company's payroll funds are!

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To many of us, a bailout is whenever the consequences of one's decisions/actions are set aside to avoid the logical negative outcome they would have otherwise experienced. What makes this more galling[1] is the fact that this new platinum FDIC coverage plan doesn't cover everyone at every bank, merely those who are anointed as 'systemic risks' (way to put a new label on 'too big to fail') Then to make it sound like this is all being paid for by all the other benevolent banks is just insulting.[2]

[1] Beyond the group primarily benefiting are exactly the group who should well understand something as basic as FDIC coverage limits and supplemental insurance.

[2] While it is technically true that the taxpayers will not be directly footing the bill, they neglect to mention that as soon as said taxpayers put on their consumer hats, they will in fact be paying for this in the form of increased fees/decreased interest rates on deposits/increased borrowing interest rates, no matter how slight.

but the depositors aren't the ones whose actions caused the consequences... (well, you know what I mean).

The bank (which took actions) faces the consequences of no longer existing.

The customers don't lose their money.

Their decision and action was to deposit in excess of the FDIC insured amount without supplemental insurance that was their responsibility to have or ensure their bank provided. The reality of the situation is that those who did so are now being retroactively granted supplemental deposit insurance after a loss and free of charge. The rest of us are paying for this gift courtesy of the government... again. (sure not as taxpayers, merely as consumers)

If we accept that the purpose of that FDIC insurance in the first place was to prevent bank runs. then, this "gift", is really the gift of stable, reliable banks. In general, this benefits us all.

What we see at these banks is that the large shareholders themselves have enough impact to cause a bank run, and they don't have the security of the FDIC to fall back on. So doesn't this show that the FDIC insurance was never enough to do what it was supposed to? What is being done here is breaking the game-theory payout structure that causes bank runs in the first place. It will prevent the same bank-run contagion individual investors are susceptible to from happening with larger investors. If we accept that the 250k insurance is worthwhile, then this seems good for the same reasons.

If your objection is that depositors were not paying to properly insure themselves, then you should be happy with what is happening--depositors will be forced to pay to insure themselves via the bank, and bank service prices will reflect the cost of being properly insured. Shouldn't we all have been paying the price of properly insured banks all along as consumers, anyway.

Isn't this a move in the right direction?

FDIC insurance was never intended to cover everything, hence the limit. It was designed to ensure that the general public[1] could have confidence that their deposits were safe. Larger players were also covered... up to the same limit. That is fair and reasonable. For those with significant assets supplemental deposit insurance products are a thing, just as home and auto insurance is, and these people/companies opted not to purchase it or otherwise prudently manage their money given the very well known limits of FDIC coverage.

Why should I be happy that the rest of us are now being volunteered to pay for insurance coverage for the group most able to understand the risk they were taking and pay for it themselves? If that weren't bad enough, this new coverage only applies for some banks. This is exactly the socialization of losses that so infuriates the general public. Not only are we paying for it, albeit indirectly, but most of us aren't even eligible for it ourselves.

This is yet another move in the exact wrong direction.

[1] i.e. the majority of individuals and small businesses who tend to be less sophisticated. As a result this quite easily understood system was put into place. I also don't buy any argument that something average Americans understand is just too complex or arcane for a group of largely 'qualified investors' and VCs.

> Why should I be happy that the rest of us are now being volunteered to pay for insurance coverage for the group most able to understand the risk they were taking and pay for it themselves?

Because, now you don't have to worry about all the banks collapsing with run-contagion, which is a problem with large enough scale (collapsing the economy) that it does affect you.

You should be happy in the way an apartment's occupants are happy when the fire department puts out a fire in a different apartment in the building, even though it "didn't affect my apartment."

> You should be happy in the way an apartment's occupants are happy when the fire department puts out a fire in a different apartment in the building, even though it "didn't affect my apartment."

We're being spoon-fed the not-a-bailout rhetoric by a bunch of pyromaniacs. Your analogy would be great were it not the case that this is the nth case of arson. We put arsonists in jail for doing things that put us at risk, why are banks different?

The banks mismanaged their risk and here we are looking to blame lack of regulation and the government because it let an arsonist run amuck.

I see no reason why we shouldn't all open a bank, be imprudent, and ask for a bailout, citing system-risk to the financial system should we not get it.

> I see no reason why we shouldn't all open a bank, be imprudent, and ask for a bailout, citing system-risk to the financial system should we not get it.

How is that a good plan when you would lose the bank? The owners of SVB lost everything!

It literally can't be a bailout [of the bank] if the bank ceases to exist:

>an act of giving financial assistance to a failing business or economy to save it from collapse

It could be called a bailout of the banking system or of the American economy - but it's not bailing out SVB by any measure.

You’re right, they aren’t. They are being used as meat shields for the banks failure. They are used as collateral damage because it is absolutely unfathomable that a bank use deposits to hedge against interest rate sensitive bets.

Yet here we are. Another round of bailouts that this time are rationalized as “not a bailout” because the bag holders, through no fault of their own, depositors, are the ones left holding the bag. A bank run was produced and in the name of financial and systemic risk avoidance, the free market finds itself, yet again, in need of a not-a-bailout backstop.

Other commenters stating that “the banks will pay, not the tax payers” need to get their heads out of the sand.

> The SVB owners lost the bank. There's no happy result for them.

Some of them did get bonuses that day - of course then they lost their jobs. I'm not sure if there's a mechanism to claw back excess bonuses, but if SVB goes through bankruptcy after this it should be possible.

Except if fdic simply distributed assets, most depositors would not lose everything, just around 25-30 percent.

Not sure why people are acting as If, without government intervention, depositors would lose everything

Svb is insolvent today but they weren't assetless

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