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Comment by rmccue | Hacker News Reader

This is conflating liquidity with solvency, the parent appears to be arguing that SVB was solvent (which seems to be true) albeit not liquid.

If I owe you $10, and all I own is a house, and you ask for your $10 back, I may not be able to pay you even though the value of my assets way outweighs the debt owed. Selling a house isn’t instant.

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Arguably the only purpose of a bank is that you have access to your money at any time you wish, if they can't honor that, they're not doing a good job to say the least.

That shows a lack of understanding of the true nature of banks because most banks can't withstand a barrage of everyone asking for their money at once. The underlying criticism of Thiel here is that he saw a liquidity problem and made it a solvency problem by encouraging everyone to pull their money immediately. If he didn't do that, there were potentially solutions that could have fixed the bank's liquidity problem without jeopardizing their solvency.

They were already insolvent, the bank run did not cause that. They used accounting tricks to pretend they had more assets than they really did.

I believe the point is the utter craven hypocrisy of ultrarich who savagely denounce government programs that help poor people and ordinary workers, who destroy and tear shit down for their own private profit, and then have the fucking audacity to scream and cry for other people to pay for their own investing mistakes. David O. Sacks I'm looking at you.

Banks are not investing. They are commodities. The share holders and bond holders who were investing were wiped out. Do you want to live in a world where only Bofa/WF/Citi/Chase exist? Because that is what you are advocating for.

> Banks are not investing.

Yes, they are. How do you think they make profits? How do you think this happened to SVB? Their investments were illiquid and they were not able to convert them into cash fast enough to return deposits to their customers.

This is literally the opposite of how banks work. If they keep everyone's money they would never be able to make loans, let alone fractional reserve leveraged loans. They need you to keep your money in an account and not need to access it that often, or at least keep most of the money there.

I guess what the bank needed and what the customers needed were fundamentally at odds then.

There was a run on USD coin due to this fiasco, it didn't have enough liquidity to pay all its customers, and yet people stopped their run on the asset because people figured that there was no way they weren't going to get something like 90+ cents on the dollar within 3 months so it was pointless to sell beyond that point, and because it became pointless to sell beyond that point it meant that the value was probably going to approach $1 so people pumped the price back up.

When I look at something like that, I really wonder if it's really so structurally impossible to make a bank where nobody has an incentive to do a run on you in anything but the most extreme of cases.

Maybe they should change their business model then if they need predatory loans to survive.

First of all, what about SVBs loan business do you consider "predatory"? The alternative business model would to charge customers to hold their deposits. I somehow doubt that would be very popular either.

Any usurious transaction is predatory by definition. Of course people don't want to talk about it. Someone submitted the wikipedia article about usury to HN about 12 hours ago but it got flagged apparently.

So you think banks should instead charge you to hold deposits? Would you use such a bank, if they promised to never engage in 'usury'?

Yes that's one possibility. Furthermore, there are ways to make money that are not usurious.

Why don't you go try to start something like that and tell us how your ideas work out in real life.

The FDIC cited liquidity _and_ solvency when they closed SVB.

I believe the two words have a bit of gray area in between them, but here's how I understand it:

If you issued a $100 invoice that is going through processing and will be paid to you in 30 days, but you owe someone $50 right now, you're illiquid.

If you have $100 long-dated bond that is currently worth $50 on the market, and you owe someone $60 right now, you are actually insolvent. Not just illiquid.

There is no gray area, just trickery. Your scenario is equivalent to saying if I have $70 in assets and $100 liabilities, then I am not insolvent if someone gifts me $30. People will not keep billions of dollars in your bank earning 0% while the rest of the world collects 4-5%.

Alternatively, if I am a bank in March 2023 and I have 70B in cash and 100B in liabilities, can I become solvent by buying these 1.5% yielding treasuries and MBS at market rate of 70 cents on the dollar and say, "don't worry, I'll have $100B in 10 years to pay everyone". Of course not.

These are both equivalent situations.

I wasn't arguing with you at all, you totally misinterpreted my comment. SVB was insolvent due to their long dated bonds.

Sorry.

SVB was insolvent

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