Hacker News Reader

Comment by zefalt | Hacker News Reader

You have a big misunderstanding just like the David Sacks and the rest who feel depositors are wholly innocent.

Most everyone involved in finance knows that banks treat 'depositors' as creditors. Banks view deposits as a liability. Anything over $250k is uninsured. There are multiple ways to insure deposits over $250k. These are simple concepts.

To say that you shouldn't know how to manage your own money is like saying you shouldn't know the traffic rules when you're driving. Where you decide to keep your money is your own choice. Everyone participating in the economy takes risks. It doesn't matter where money are assets are kept...there is always risk.

In terms of depositors, they neglected counterparty risk. In terms of SVB, they poorly managed interest rate risk.

View on HN

Oh, no, you mis understand me: I know what the rule is. I just think it is arbitrary and stupid and was a hack when it came in decades ago before most people actually used banks.

Why does someone with 250,001USD in an account deserve what they get but someone with 249,999USD here and 100bn elsewhere get bailed out? Why is the only way to transfer cash to take counterparty risk? Why are the amounts for businesses and individuals the same (250k is huge for an individual but tiny for a business!?)? Especially since it is individuals that will miss their salaries when their employer finds they're bankrupt, and is that also their own fault for not assessing counterparty risk?

We could avoid all these contradictions by just having "basic function" accounts that let people/companies use banking services that pay no interest and have no risk (fully insured). Then separately offer "investment" accounts for people that want them (with no insurance). If I want to use a hospital or an insurance company, I just use it and pay accordingly. Why is are banking services the only thing where to access the service I have to become an investor in the provider!?

Bailout SVB, or don't. I don't know if people deserve it or not. I make no moral judgement. I just think this whole system makes no sense, is unfair/arbitrary and is not effective. It should be changed irrespective of what we do in this one case...

Edit: I should have been clearer in my original comment. I didn't mention the 250k limit because to me at least it doesn't matter. I can see being an investor (risk AND reward) or not (no reward but no risk) at any amount...

I understand most of your questions may be rhetorical, but I'll try to clarify some aspects.

The FDIC insurance coverage limit is an arbitrary number. It was enacted during the era of the Great Depression to protect the common people's money from bank failures. The limit was raised from $100k to $250k during the GFC. It was always meant as a deposit insurance to protect the common person...not the wealthy. To offer full insurance to all bank deposits would cost $18-20 trillion. This has never been the normal and is just not feasible.

You always have counterparty risk when you have someone else hold your money. Even if the fed starts CBDCs (central bank digital currencies) and gives everyone a fully 'insured' bank account, the fed is still your counterparty. These risks should always be managed.

You can avoid counterparty risk by holding your own money. You can transact in cash if you want to avoid banks. You would have to take care of your own security and safekeeping which makes it unfeasible in large amounts.

To think that companies or VCs would not be advised of standard corporate finance practices seem like a huge failure.

One of the axioms in finance I've run across is that you can never eliminate risk. You can only move it around.

Reply on news.ycombinator.com