[XogGyux]

No, it wasn't as explained to you already. Shareholders and investors were not bailed out and as such it was not a bailout.

Depositors must always be protected.

Why? The chose the wrong bank, didn't do their due diligence to make sure their deposits were insured. Liquidation of the bank's assets would have at least given them 70% of their money back which is a fair haircut for not making the sensible thing.
Who bails out Tommy when he buys a house and it turns out the plumbing was bad or the roof is leaking? Who bails out Zara when she realizes after 4 years of philosophy degree that the best is just good to become a high school or college professor with shitty wages and that her loans are going to last her the better part of a lifetime?
The bailout is the easy way out. It is a means as to appease the people so they don't start asking for the right reforms that need to come to the banking sector. They should have allowed it to happen, piss off millions of people so that these people stop being complacent and start demanding good policy.

[XogGyux]

This is the problem of our society. Too many people that don't know shit about how things works, so they just sort of choose to believe what they want.

This bank collapse and the really really really stupid belief that this is like 2008 is evidence of that.

Then we have a lot of asshats on social media and the like, spreading bullshit because it makes them money (see info wars, see fox news). Then we have ignorance and naive people (see some of the people in this thread) that are eating it up, and believe they know better.

Obviously, the financial mechanics are totally different. But, at the core of both incidents, the underlying human behavior is similar. Panic and the run-for-the-exit-door mentality. We are just starting to have this issue and the Fed Chair Jerome Powell basically said there would be pain with raising interest... well we are starting to see the pain and the media is going NUTS with this crap now. We will see in the long run how this shape up but I wouln't dismiss it just yet. Remember, the fed has been hinting to more interest raises and if they don't do it you might also get people panicking because they lost trust on what the fed does. The fed is already on shaky grounds since the "inflation is temporary fiasco" .

[noemon]

Its not a bailout and your asshattery is cute.

[ness31]

Here’s the thing. We could both pull up articles and opinions to support our positions. But at the end of it all, you had a bank that lobbied for deregulation because it didn’t pose a risk but ultimately needed an intervention otherwise it would cause systemic failure.

Dude. Call it what you want, but we all know what it is.

[Rancid]

Obviously, the financial mechanics are totally different. But, at the core of both incidents, the underlying human behavior is similar. Panic and the run-for-the-exit-door mentality. We are just starting to have this issue and the Fed Chair Jerome Powell basically said there would be pain with raising interest... well we are starting to see the pain and the media is going NUTS with this crap now. We will see in the long run how this shape up but I wouln't dismiss it just yet. Remember, the fed has been hinting to more interest raises and if they don't do it you might also get people panicking because they lost trust on what the fed does. The fed is already on shaky grounds since the "inflation is temporary fiasco" .

It is funny how it works though:

Interest rates cut: NOoooo!!
Interest rates raised: Nooooo!!!

[Skynet]

The current banking crisis is the result of Ukraine war, high inflation ergo higher interst rates... I think the West can not afford to continue the Ukraine war, same counts for Russia.

[noemon]

Here’s the thing. We could both pull up articles and opinions to support our positions. But at the end of it all, you had a bank that lobbied for deregulation because it didn’t pose a risk but ultimately needed an intervention otherwise it would cause systemic failure.

Dude. Call it what you want, but we all know what it is.

The bank has failed and is no more.

Its owners and shareholders have gone bankrupt.

That is not a bailout by definition.

[XogGyux]

Is this an issue of nomenclature or semantics? Maybe the shareholders of said bank did not get a windfall or the CEO/executives. We will have to see as it seems they might have sold shares before all of this occurred... hopefully they suffer consequences for this.
But who really got bailed out were the depositors on the bank. If they are going to deposit over 250k they should have either done the research on the bank to make sure the bank is safe and take the risk if they wish to.... or go above and beyond and insure the money by other means. If they didn't do either, then they should suffer the consequences like the rest of us mortals. The FDIC intervened and offered a previously non-existing guarantee de-novo with funds from other people (presumably other banks) to prevent the collapse of multiple companies that didn't do their due diligence or were not in the position of taking the risk with this bank. As far as I am concerned, that qualifies as a bailout.

Investopedia definition:

A bailout occurs when a third party - usually a government or government agency - steps in to save a company or companies by providing them with capital, credit, and other forms of support.

Now, you might think SVB did not get bailed out. This seems to be correct. But what you are missing is that the companies/businesses that had their money inside SVB they all got bailed out. I think the definition fits perfectly well as I described above.

[noemon]

SVB the company did not get bailed out.

Deposits must always be guaranteed and that is the regulation we need.

[Rancid]

The bank has failed and is no more.

Its owners and shareholders have gone bankrupt.

That is not a bailout by definition.

Indeed, it's like @ness31 isn't even bothering to actually understand what's happening here. That's exactly the problem you see all over social media. People are just saying shit to say it. People are getting angry at something they don't understand because it's cool to get angry at anything related to banks.

Is this an issue of nomenclature or semantics? Maybe the shareholders of said bank did not get a windfall or the CEO/executives. We will have to see as it seems they might have sold shares before all of this occurred... hopefully they suffer consequences for this.
But who really got bailed out were the depositors on the bank. If they are going to deposit over 250k they should have either done the research on the bank to make sure the bank is safe and take the risk if they wish to.... or go above and beyond and insure the money by other means. If they didn't do either, then they should suffer the consequences like the rest of us mortals. The FDIC intervened and offered a previously non-existing guarantee de-novo with funds from other people (presumably other banks) to prevent the collapse of multiple companies that didn't do their due diligence or were not in the position of taking the risk with this bank. As far as I am concerned, that qualifies as a bailout.

Investopedia definition:

Now, you might think SVB did not get bailed out. This seems to be correct. But what you are missing is that the companies/businesses that had their money inside SVB they all got bailed out. I think the definition fits perfectly well as I described above.

It's not a bailout for those with accounts that have balances under $250,000. Sure, you could call it a partial bailout for those who had accounts with balances over $250,000. It's a partial bailout because what the FDIC is doing is giving out receivership certificates. That's actually not a guarantee they will get all of their money. What it does is it makes those who have accounts over $250,000 become the first in line to get back some (or possibly all) of their money once bank assets are sold, or a new owner steps in to inject capital. This is much better than saving the shareholders. FDIC is also offering some advances (i.e. loans) for a short time on some of that money. All of that said, bailing out depositors that pay regular people is a much better situation than what happened in 2008. In fact, I support this type of bailout. If these companies cannot pay employees, then things could start to cascade in a really bad way.



BTW, an easy thing to do is simply open two accounts with the same bank. As long as you don't allow any of them to go over $250,000, you are effectively insured for up to $500,000.

SVB the company did not get bailed out.

Deposits must always be guaranteed and that is the regulation we need.

Indeed.

If people want to call it a bailout, sure, whatever. However, what is stupid and foolish is to liken this to 2008. Saving a depositor over a bank share holder is the right way to do this, if they are going to do it at all (which IMO they should).

[XogGyux]

It's not a bailout for those with accounts that have balances under $250,000.

Well, given that 90%+ of the accounts had more than 250k, it is essentially a bailout for 90%+ of the depositors of the bank.
As far as I am concerned, of over 90% of the accounts are being bailed out, it is fair to call this situation a bailout.

Sure, you could call it a partial bailout for those who had accounts with balances over $250,000. It's a partial bailout because what the FDIC is doing is giving out receivership certificates. That's actually not a guarantee they will get all of their money. What it does is it makes those who have accounts over $250,000 become the first in line to get back some (or possibly all) of their money once bank assets are sold, or a new owner steps in to inject capital.

Well, technically if 90% of the accounts are affected indeed you are correct, it is partial... but on the other hand... 90%!, I think splitting hairs over this minutia is ridiculous, this is 90% bailout.
Maybe the CEOs/management and the Shareholders won't directly benefit from all of this. But is this a win? I understand that you probably don't want to see someone from the board of directors getting bailed out, they are probably in part responsible (either they knew they were doing something stupid, or they didn't know and therefore guilty of being clueless about their business) but this is a publicly traded company... you don't care about the few thousand dollars that someone might have had in their 401k invested for their retirement for instance? How is a small investor in any way more culpable or less worthy of the same degree of assistance as a depositor? On the other hand.... why does a company like Roku, keeping all that cash without any sort of insurance scheme is worthy of a bailout?
I don't think it is fair. That is not to say that I disagree with the bailout. To be honest, none of us have all the variables or have the knowledge to assess wether it was worth it. My take, more likely than not this is one of those situations in which "this is the lesser of two evils" and we will just have to swallow it as it comes.
But where is the $$ coming? Yes, the first 250k depositors are entitled because the bank paid its FDIC insurance. But anything above that, if it is not covered by liquidation of the bank's assets, will come from a third party's pocket (Therefore bailout) and presumably the FDIC will put this burden on the banking system as a whole. We all know that JP Morgan Chance, Wells Fargo and Bank of America love to pay more money on insurance and they will totally not pass that cost to the customer in the manner of fees, interests, convenience charge up, phantom accounts, etc correct ? I am sure all their CEOs, management, and shareholders will be happy to take a cut so that they can insure their customer's assets without burdening them with additional fees correct?
If anything this is the real thing why I think it is important to call it for what it is. Maybe if there is a bit more outrage about this people push for more financial regulation so that shit like this don't keep happening.

This is much better than saving the shareholders.

Maybe. Not all shareholders own a sizable portion of the company and hold board seats or have any say on the company's policy or financial decisions. You and I could have owned a portion of this company in our retirement portfolio... in fact I might very well have a minuscule sliver of the company as part of my ETF. Why would you and I that might be small investors in the company suffer the consequences when Roku and others are getting bailed out?
I am not saying there are easy solutions and/or what was done was wrong. In fact, given what I know right now it might very well be the best thing they could have done. The problem with fear is that it is contagious and irrational. If they didn't put the lid on this quickly, it could have spread far and fast to the point that it could have trully collapsed the whole banking system. That being said, minimizing what just transpired is not helpful either.

All of that said, bailing out depositors that pay regular people is a much better situation than what happened in 2008.

I am not sure that these are "regular people" if 90% of the accounts have more than 250k.

If these companies cannot pay employees, then things could start to cascade in a really bad way.

But this is a huge double standard, how many years 911 responders have to wait to have their healthcare taken care off, or vets? Or students that were defrauded by "universities" or victims of scams or identity theft? How is it that the government comes in and swoops these people out of peril quickly but the rest is let to rot? I guess you have to have over 250k in the bank for the government to act expeditiously right?
As I have said before. I think they probably did the right thing at least as to avert the immediate pain. But I also think skipping that pain will prevent us from learning the lesson and we will keep seeing this shit over and over again.

BTW, an easy thing to do is simply open two accounts with the same bank. As long as you don't allow any of them to go over $250,000, you are effectively insured for up to $500,000.

Sure, and that is perfectly fine for the lowly mortals than we are. Maybe after 3 decades of saving we will ammount a couple million dollars if we are very careful and lucky and we can probably spread that around in multiple accounts to mitigate any potential issue. But these are not individual people that were affected but businesses, they might need to keep substantially more money liquid. Just having 20 employees in your payroll that earn 5k/month = 100k and if you need 3 months buffer of payroll just in salaries you are above the 250k insurance, add other business expenses such as loan servicing, leasing of real state, utilities, etc and it is reasonable some companies and small business will have well over the FDIC insurance. Now, I am sure they have other additional means and strategies they can use to insure their money above FDIC limits and that is where risk management comes into play.

[noemon]

Well, given that 90%+ of the accounts had more than 250k, it is essentially a bailout for 90%+ of the depositors of the bank.
As far as I am concerned, of over 90% of the accounts are being bailed out, it is fair to call this situation a bailout.

It's not a bailout and you should not be using this term because it justifies infowars type of ignorance.

Deposits must always be guaranteed, not vilify the action of guaranteeing them as a "bailout". Deposits are not investments and depositors are not shareholders. Companies and people should not have the insecurity that if their bank fails, they lose their own money that they have not invested anywhere. Not in any country that respects itself, the art of doing business and its own citizens. The bank has failed and its shareholders have gone bankrupt. By definition, this is not a bailout, no matter how many opt to play petty politicking against their own interests.

The FED or the Central Bank of a country regulates the banks, is the ultimate guarantor of financial stability, is the lender of last resort and is the controller of inflation. And it is also independent from the state and public oversight. The error is guaranteeing deposits up to a certain level and then choosing on its own whim which depositors to save and which not. This time these ones got lucky. But this should never be up to a Central Bankers decision to make, it should be law for everyone.

Central banks can print these money and inject them in without affecting inflation and as such there is no excuse for people not demanding this to be law. Instead of demanding that all deposits are guaranteed, you are implicitly justifying the Central Banks for choosing which depositor to rescue.

There is not a single group, that has an interest to not increase the deposit guarantee to infinity. From the left to the right, not even bankers have such an interest. Deposits must be guaranteed by the Central Banks if they want to keep their independence and they should also increase oversight on the deposits held by the banks they oversee. Otherwise, the role should be taken by the State and be done with it.

Your argument that depositors "will not learn a lesson from this" is frankly ridiculous. What lesson is that? That companies can do business without a bank account? They can't. That they should choose their bank more carefully? That the local plumber, hairdresser or app startup must study finance and check their banks quarterly statements before opening an account? Which bank is immune from failing? None. Not even massive institutions have this ability.

The only lesson here is that all deposits must be guaranteed by the Central Bank since it is the Central Bank regulating the fractional reserve system, if you legislate that banks do not have to keep more than 10% of their deposits in reserves and that they can invest other people's money without their consent then you must also guarantee what happens to that 90% being invested and hence why Central Banks are by definition the "lenders of last resort", the last resort being the guarantors of that 90% flying around.

Your analogy of fire-fighters and scammed students makes no sense either. You will have to actually expand & compare them qualitatively for it to make sense.

[XogGyux]

It's not a bailout and you should not be using this term because it justifies infowars type of ignorance.

Oh, so if infowars says the sky is blue we should not be using the term blue because it justifies ignorance?
For the record, I did not even read what the OP said and certainly I did not click on a link to infowars website. The former because the OP constantly makes nonsensical threads and the latter because... well it is infowars and out of principle I do not wish to generate any sort of traffic or revenue for them. My assessment is independent and contains information that I have obtained from more reputable sources, sources that typically are accused of being biased to the left i might add.

On a side note, I resent your veiled attempt at either attempting to manipulate me (reverse psychology) or trying to shame me for supposedly spreading infowars nonsense. As I have said before, I have no fucking clue what infowars is saying because I can promise you, that website has not made it to my internet browser history. If the only way you can consider another point of view is to have that point of view be told to you by a source that you trust, perhaps Mr William Isaac, a former chair of the FDIC opinion might sway you.

He thinks this is "clearly" a bailout of the depositors. I said just as much and to my credit I only searched for this clip after making my other post. As I said, I came up with my own independent analysis.
Here is an ABC article that also hints at it:
https://abcnews.go.com/Business/bailout ... d=97846142

Deposits must always be guaranteed, not vilify the action of guaranteeing them as a "bailout".

Well, that is certainly your opinion and perhaps there is a good argument to be made and it is prudent to have that debate. But, there have been 500+ banks that have failed since 2000. Washington Mutual does not exist anymore, failed in 2008 and FDIC seized the bank and sold it off to JPMC... whats so different about this situation that something similar could not be arranged? Why this case needs special accommodation?
You say deposits must always be guaranteed... well they arent and have never been. There is a reason there is a nice logo and plaque "FDIC insured" in most banks and they clearly say deposits insured up to 250k. The implication being, that unless you take any additional steps (and there are means by which companies can mitigate risk) the guarantee is up to 250k and that is it. If I insure my apartment for 500k and tomorrow it catches on fire, I might be able to get from my insurance company up to 500k for my claim... however, I cannot ask them to also cover 20million for my jackson pollock that burned with my apartment... for that I would have to acquire additional insurance that might come with additional hurdles and fees. For the federal government to create a post-hoc solution for this, is in essence a bailout.

Companies and people should not have the insecurity that if their bank fails, they lose their money.

Sure, and when you find utopia give me the coordinates so that I can move in with you.
If you are asking the government to assume the risk then they should also run the business (aka. nationalization -> socialism). I don't like the mixture of allowing them to function as private enterprise/business and then have the government on the hook for when shit hits the fan. I think that makes for a slopy banking system and for a sloppy regulatory system. Besides, there have been hundreds of bank failures in the US in the last 2 decades alone yet the people are not living in constant fear that their bank will fuck them up, so I am not certain that we need some extra insurance.

By definition this is not a bailout, no matter how many opt to play petty politicking against their own interests.

Read above. It is
merriam-webster:

: a rescue from financial distress

Aren't the depositors being rescued from financial distress?

cambridge dictionary:

the act of helping a person or organization that is in difficulty, usually by giving or giving or lending money:

Again, isn't the government intervening and facilitating payments to the depositors that are having difficulty?

The FED or the Central Bank of a country regulates the banks, is the ultimate guarantor of financial stability, is the lender of last resort and is the controller of inflation.

Yes. Up to 250k if the bank is insured. It says it on the tiny little metal plaque underneath the bullet proof window of any bank teller that is insured. The implication (rather obvious really) being, that if you place 250,001$, you got 250k insured and $1 uninsured. If the bank goes bust, the insurance is only required to give you 250k and you lost $1 for not doing your due diligence and putting that extra little dollar on a separate bank or getting any other sort of insurance scheme for your money.

Central banks can print these money and inject them in without affecting inflation and as such there is no excuse for people not demanding this to be law. It is in fact stupendously idiotic that some people are using words to vilify the rescue of depositors such as "bailout" because the brainwashing is deep and powerful.

You are the one vilifying here. I am using a term that carries no intrinsic negative connotation. You are the one that is choosing to see it through a prism of (presumably) deleterious assumptions.

Instead of demanding that all deposits are guaranteed, you lot are implicitly justifying the Central Banks for choosing which depositor to rescue.

Why all depositors must be guaranteed? That is like saying all houses must have insurance. Why? What happens if I don't want to pay for insurance for mine? If I am willing to take the risk and then if I lose it I either rebuild it with my own money, go buy another one (either cash or through mortgage)? There is a cost to that, and someone will be footing the bill. I am going to go on a limp here and take a guess that Jamie Dimon, Charles Scharf, Brian Moynihan, Jane Fraser and Andrew Cecere are not going to be taking paycuts to pay for additional insurance premiums. There are methods by which individuals and/or companies can insure above and beyond FDIC, they just need to account for this and likely pay the premium themselves.
When I mail a package, it is insured for up to $100. If I want or need more, I can always go above and beyond. Schemes exist to arrange for this. If nothing else, you can buy shorts on the bank and if they fail and you lose a portion of your uninsured deposits, you'll make it up by your short positions. It will cost you money, but that is insurance for you, if you are so afraid of losing your money, there are strategies to minimize the impact.

There is not a single group, that has an interest to not increase the deposit guarantee to infinity.

That is fine with me, i have no objection on doing so but I am not going to pretend that what just happened here was not a bailout. Granted, for companies that perhaps did not have a major culprit on their financial hardship (although this is also debatable, you should always do due diligence). The government bailed out businesses during covid pandemic... does that mean they did something wrong? is this vilifying the businesses that were having financial trouble? No it is not. If you perceive the term as a vilification, that is a you problem, not a me problem. For the record, there are many schemes that can insure your money beyond 250k FDIC insurance. https://www.moneycrashers.com/dif-insur ... ance-fund/
And listen, businesses fail all the time, and sometimes not due to reasons that are foreseen or their fault. It is just the way it is. I am sure some horse hardness builders went out of business when cars came to market. I am a fountain pen user, I know this, many brands went extinct with the invention of ballpoint pens!
ow. I have no intrinsic issue with changing the rules for the future events but you must at least admit there is an unsavory ordeal with changing the rules after-the-fact even if you perceive this to be the best case.
Who is bearing the cost of the added FDIC premium to cover deposits over 250k? It is going to be the depositors. Now... how many Americans have over 250k in a single account? I promise you, not many. So they are likely going to be paying increased interests, fees, etc for insuring above and beyond a quantity of money that they will never have.

Otherwise, the role should be taken by the State and be done with it.

Massachusets have DIF

Your argument that depositors "will not learn a lesson from this" is frankly ridiculous. What lesson is that? Companies can do business without a bank account? They can't.

It is called risk management and it is a whole field of its own. For starters, Why Roku needed to have 400million in a single bank? Whats wrong with having 100M across 4 banks... you might say well, you are still over 250k and that is true, however now they only have 25% exposure as not all 4 banks would go under. But it is far less than that, SVB reportedly have assets that covers 70%+ of the deposits, so if roku had 100m instead of 400m they might have stood to lose only ~30% of the 100M that they had in SVB... Individuals can spread their $$ across different accounts, there are also credit unions, there are banks that in addition to FDIC they also have DIF which insures above 250k. And this is just a few things that a dude on his underwear in bed can find out, imagine the schemes a company with 400million in the bank can pay lawyers and accountants to figure out. There are ways.

That they should choose their bank more carefully?

No? What else do you want to get rid of? I could lose my life's saving with a crash of the stock market in my 401k without a fault of my own.... or even if I keep it in cash under my mattress, I could lose the value of it all due to inflation or due to a fire, and even if I put it in gold, somebody could come and steal it from me. I am just saying, for the individual person, the 250k limit is barely an inconvenience. I am in the 5% of earners for the US and I am not personally worried about having my "fortune" wiped out in this fashion and businesses have additional risk management strategies. Do you really need to bring the risk to 0%? No, that is absurd, everything in life has a certain risk attached to it.

That the local plumber and hairdresser must study finance and check their banks quarterly statements before opening an account?

You must know some wealthy hairdressers or plumbers .

Your analogy of fire-fighters and scammed students makes no sense either. You will have to actually expand & compare them qualitatively for it to make sense.

I am sorry you cannot understand it.

[ness31]

https://www.bloomberg.com/news/articles ... alley-bank

What kind of ‘depositors’ have the means, the ability and the presence of mind to even conceptualize the notion of having a ‘moral imperative’ to a bank?

These ‘depositors’ were invested - in every sense of the word- in SVB. We can play word games of course; we’re talking about the finance sector after all…I’d expect nothing less.

[noemon]

He thinks this is "clearly" a bailout of the depositors.

Of course he does, it's his job to vilify this action and infowars job is to vilify the government.

The question is why et tu?

Why all depositors must be guaranteed? That is like saying all houses must have insurance.

All mortgages must have insurance by law.

Who is bearing the cost of the added FDIC premium to cover deposits over 250k? It is going to be the depositors. Now... how many Americans have over 250k in a single account? I promise you, not many. So they are likely going to be paying increased interests, fees, etc for insuring above and beyond a quantity of money that they will never have.

The printers of the FED/ Central Bank.

No? What else do you want to get rid of? I could lose my life's saving with a crash of the stock market in my 401k without a fault of my own.... or even if I keep it in cash under my mattress, I could lose the value of it all due to inflation or due to a fire, and even if I put it in gold, somebody could come and steal it from me. I am just saying, for the individual person, the 250k limit is barely an inconvenience. I am in the 5% of earners for the US and I am not personally worried about having my "fortune" wiped out in this fashion and businesses have additional risk management strategies. Do you really need to bring the risk to 0%? No, that is absurd, everything in life has a certain risk attached to it.

The 401k is an investment, the cash companies use to pay their bills via a bank are not.

I am sorry you cannot understand it.

It is not making any sense and that is why you are not laying out your analogies. Because all these assume a risk by choice and free will. Companies have no choice to not use a bank to conduct their business.

You spent an entire post ranting nonsense but you did not address the main argument about liability.

Why should deposits be guaranteed by the Fed/Central Bank? Because it is the Fed/Central Bank regulating the fractional reserve system, when you legislate that banks can use 90% or 95% of 99% of other people's money without their knowledge and consent then you are liable for that 90% being invested based on your legislation which also happens to be outside public/state oversight.

When you legislate that banks can use the money of others to take risks with and they crash and burn as a result, you have the direct liability for what happens to these money of that other people that you have legislated that it is okay to be used for other purposes and without the people's knowledge and consent. This should be quite simple. Moreover, the FED/Central Bank has the ability to replace all the money with the press of a button anyway without affecting inflation. The liability is between the FED/Central Bank legislating the rules and the Bank playing by those rules. Not the third-party that has no option but to pay for the use of a bank for the right of doing business. Why do you believe otherwise?

The business customer pays the bank money for the right to conduct business transactions without choice, the bank pays the FED interest on the money they use from their customers to make loans but it is the customer that is liable for the losses of the bank and the customer the one that is providing the capital for both the bank and the Fed to make money on and the customer that has to pay for insurance both for their deposits and for their mortgages. The customer has the liability for the risks others take with their money!!! The customer is bailing out the banks and providing the capital for the banks business model, yet pop culture managed by money centres also blames the customer for not doing "due diligence" when their bank fails!!

It's outrageous yet that does stop regular people from parroting such nonsense as gospel which makes one truly wonder.

[noemon]

This economist like many others are out in full force blaming everybody but the regulators and of course censoring all those who speak up:

https://www.telegraph.co.uk/news/2023/0 ... -disaster/

Blame lockdown failures for today’s inflation disaster
Economists abandoned their duty to scrutinise government policies on Covid – and now they have less credibility to help bring down prices

The era of high inflation is about to enter its third year. US inflation has remained above 6 per cent since October 2021. In the UK, the problem has been worse, hitting double digits in early 2023.

There is little disagreement today over the drivers of high inflation. Hundreds of billions were spent by governments to support individuals and firms through lockdowns, and to stimulate the economy after them. It led to an increase in demand that supply could not meet in many areas.

But why has it persisted? In our view, the ongoing high inflation is a consequence of the public losing trust in economists to do their main job: subject new laws and policy proposals to rigorous cost-benefit analysis. The public has little reason to expect that future government spending and other policies will be balanced. And without such expectations, a return to low inflation will remain unlikely.

The economics profession failed to speak out in 2020 about the predictable harms of Covid lockdowns and school closures to children and those on lowest incomes. Economists believed that many people would stay home because they feared the virus, not because of lockdown. Hence, they reasoned, restrictions themselves were not responsible to any significant degree for the damage done to the economy.

Surveys suggested many economists were united in their support for draconian controls. Surveys of economists did not even ask about inflation until far too late (June 2021) and never asked about the terrible human cost of school closures.

But the fear of the virus that drove much of the behavioural change did not happen independent of lockdowns, nor did it correspond to objective facts about the disease. Surveys consistently showed that the perceived mortality and hospitalisation risks far exceeded the objective risks from a Covid infection for young and middle-aged people.

And the recent Lockdown Files revelations published by the Telegraph help explain why. Ministers plotted to strategically release information that would maximise public panic and ensure maximum compliance. This adherence – which economists considered voluntary and rational – was achieved by inducing panic and excess fear. Furthermore, contrary to what economists may have hoped, lockdowns did not stop Covid.

Economists eschewed their number one job – enumerating the costs and benefits of policies. The concept of QALYs, where health economists put a monetary value on people’s lives according to the number of years they have left and the quality of that life, was all but abandoned.

Had economists raised the alarm about Covid policies’ likely long-term impacts and costs, it would not have prevented all lockdowns, school closures, and stimulus programmes. But the debate would have been more balanced and policies perhaps more moderate. Lower inflation and less learning loss would have left families and children much better off than they are today.

In the end, policymakers only have themselves to blame for the choices they make. But some humility is now needed in the economics profession, after it failed to warn against often ineffective and wasteful policies. Work will need to be done on regaining credibility.

Central banks are fighting against inflation with interest rate rises. It will be tamed, but at very high price to workers and businesses.

Noemon aka Nick Matheson:

Yet another economist blaming the peanuts of QE done to protect actual people for the first time in history during a real health crisis as opposed to the gazzilions of QE printed to provide free money to banks since 2008 and before just so they can inflate the housing market & venture capital.

Yet another economist blaming abstract people with no control or oversight, or the popular victim the NHS with a caption, for the failure of a financial system over which neither people nor the State has any control or oversight over.

Companies pay banks fees for the right to conduct business transactions without choice as no business can operate with business banking, banks pay central banks interest on the money they take out from their customers to give to other customers. The depositor provides all the capital, gets nothing out of it except for more fees to pay and more insurance to get covered for other people's risks but still gets all the liability and all the blame!

The Central Bank/Fed regulates all these, makes money out of it, yet the liability lies with the depositor and capital provider and not the freeloading banks and Central banks when their regulations and investments of other peoples money go awry.

Yes mate, let's blame lockdown, lazy people staying at home, depositors failing to do due diligence, but not the gazzilions we print to save banks every decade who are making money on our own capital or the central banks regulating it all and making money on our own capital too with no liability and not even public oversight.

There are plenty of you laying about western news papers the past few days trying to direct the blame again away from the actual culprits for what is already here and what is coming too.
Yet another megaphone for the failed money men who have now assumed saint positions in popular nomenclature.

The better question is what incentive is there for the Fed and Central Banks to oversee finance properly when all the liability for their actions, framework and regulation lies with the depositor who provides all the capital has no say over them either?

And more of them here: https://www.wsj.com/articles/svb-silico ... y-bea000cd

[Steve_American]

I think that now might be a time when most people can understnd banking better.

I have seen reports that SVB took its depostors' money and invested it in long term US bonds (to get a higher rate of return).

Yet, most of you here still believe that banks use their depositors' money to make loans.

But, think about it a second. Banks have 2 main sources of money. Their depositors is 1, and the owners' inital capitalization is the other. [I'll explain below why loan repayments are not a source of money for banks.]

So, if banks lend out their depositors' money , then when there is a run on the bank how can they ever give all their depositors' their money back? IMO, they can't because they can't demand the borrowers pay the bank today all the amount of the loan. This is because 99% of the borrowers do not have the money, many can barely make the normal payment each month.

OTOH, if the bank invested the depositors' money in liquid assets then the bank can use those assets and their initial capitalization to return all the depositors' money, now, today or tomorrow.

There are rules on how many dollars a bank can lend out. Generally, this is 90% of its deposits. But, banks can borrow, ususlly over night, to meet the reserve requirement of the Fed. However, this requirement is not until 7 days after the loan was made. This means that the borrower has 6 days to spend the loan so it gets deposited in to different bank or into the same bank. Usually, it is a different bank. Now, it is 7 days later and the bank dept. that has to meet the Fed reserve requirement needs to figure out if it has the required deposits. If it doesn't the bank will borrow overnight from a bank that has excess deposits (which can be a result of the dollars the 1st bank lent out 7 days ago being deposited into the 2nd bank), so that bank can get a little profit on these extra deposits. In a pinch, the Fed will also lend the bank money to meet the requirement. The Fed does this to avoid making banks fail for no good reason.
. . . Thus, loans create deposits, and these new deposits are then used to meet the "reserve requirement" of the lending bank. This means that there is no limit on the amount of dollars banks as a group can lend out. The 90% rule doesn't limit anything. OTOH, it can't be 100% because some of the dollars can have been used to buy things overseas or taken overses by tourists, etc. These dollars are not in US banks anymore.

___________________________._______________________________________
MMTers assert that banks create new dollars or euros, etc. with every loan. When the borrower makes a payment, only the interest is entered into the assets of the bank. The part of the payment that is the prinsipal is matched to the bank's asset of the loan documnet and both are "reduced". That is, the dollars are destroyed when payments are made. Only, the interest gets into the bank's hands. Thus, the creation of dollars is matched with distruction someday.

MMters also assert that when the US Gov. makes every payment it makes to everyone and anyone, it uses newly created dollars. And that all dollars of payments made to the US Gov. are destroyed as soon as the check is cleared/cashed. That is, all dolllars are IOUs. The issuer of the IOUs doesn't need its own IOUs back, because it can make more. The problem with IOUs is getting people to accept them. Govs. do this by having taxes and demanding they be paid with the currency that Gov. issues. [This is why the EU & EZ are different. Only the ECB can issue euros, no Gov. can do that.]
. . . MMTrs assert that the US Gov. has 2 froms of dollars. Ordinary dollars (either paper or electronic) and dollars in bonds. Bonds are much like money in a savings account at your bank and other dollars are like those in a checking acc. So, selling/buying a bond just moves dollas from one acc. at the Fed. to another acc. at the Fed. Just live trnsfering money from your savings acc. to your checking acc. The dollars don't leave the US. In fact, most dollars used to buy stuff made overseas don't leave the US either, the foreigh comp. has an acc. with a US bank to cash the check. So, when American buy stuff made in China the dollars stay in the US and China can use them to buy US bonds to earn interest.

.

[noemon]

Another economist, Prof of Columbia out there blaming depositors and deposit insurance instead of the actual culprits, WSJ this time:

Silicon Valley Bank’s failure makes many Americans grateful for deposit insurance, which protects accounts holding $250,000 or less. But the SVB episode also illustrates the dangers of deposit insurance. A banking system dominated by government insurance, plus too-big-to-fail protection that effectively insures all deposits at the largest banks, lacks essential market discipline, is systemically unsafe, is more likely to see episodes like SVB’s failure, and is more costly to taxpayers and bank customers.

WSJ Opinion Potomac Watch
The Failures of SVB and Signature Bank Expose Years of Policy Mistakes

Historically, unprotected well-informed depositors, especially other banks, gauged and responded to each bank’s risk, creating an incentive for banks to manage risk responsibly. Uninformed depositors—like those now at risk at SVB—were free riders on informed discipline. Now, informed depositors can easily get around the $250,000 limit on insurance, which eliminates their incentive to monitor banks. The recent disappearance of the interbank loan market means that banks don’t monitor each other to gauge creditworthiness as short-term borrowers of reserves either. That leaves only bank regulators to mind the store, and they often lack incentives and knowledge to measure and punish risk on a speedy basis. That’s how predictable messes like SVB happen.

How do informed investors skirt the limit and get all their deposits insured? In two ways. First, they deposit millions at a bank participating in the Certificate of Deposit Account Registry Service, or Cdars, which swaps deposits among many banks so that a depositor can have millions covered with all transactions handled through a single lead bank. Second, they deposit funds at a too-big-to-fail bank, where all deposits are effectively riskless. Title II of the Dodd-Frank Act of 2010 lays out how the Treasury bailout would occur and be funded.

A century ago, bank regulators saw their job mainly as examining banks and forcing them to publish accounts in the local newspaper so that informed lenders and depositors could act on accurate information. Runs on deposits occurred under the old system, but the record of fragility has been exaggerated and misunderstood, and the U.S. historical experience was an extreme case. Most countries had occasional bank failures but rarely suffered a systemic crisis. Canada never did. The U.S. was prone to systemic crises because of idiosyncratic factors of regulation. Branching restrictions, which weren’t eliminated until 1997, created a system of thousands of small, isolated and undiversified banks and a pyramidal liquidity management system that sometimes collapsed under stress.

Deposit insurance was absent from nearly all other countries’ banking systems before 1980, and from the U.S. (with some temporary exceptions) until 1933. It was adopted for political reasons, and it hasn’t been a stabilizing influence. Virtually every academic study of deposit insurance shows that it promotes, rather than reduces, banking system fragility, with major costs borne by the insurers—which means ultimately by insured depositors and potentially taxpayers. The popularity of deposit insurance reflects public ignorance about its costs and about how a disciplined, uninsured banking system could operate as an alternative.

Informed depositors respond to troubles at banks early, with withdrawals that pressure banks to reduce their riskiness. When discipline resulted in bank failure, that often had a bright side: Risky banks in receivership were prevented from digging deeper holes at depositors’ expense. Consequently, for most of U.S. history, depositors’ losses on failed banks were small.

Even the tardy uninformed discipline exerted on SVB today likely will have a similar effect. Based on publicly available data about SVB’s portfolio, its deposits and its capital footings, the cost of bailing out uninsured depositors is likely to be very little, because the run on SVB happened before the bank became deeply insolvent.

Generous deposit insurance, with the amplifications of Cdars and too-big-to-fail protection, has been undermining market discipline for many years. A new factor is the Federal Reserve’s quantitative-easing and interest-on-reserves policies, which have eliminated the interbank market for borrowing reserves, further reducing incentives for institutions to monitor one another’s risks and punish transgressors by denying them access to credit.

It’s clear that many SVB clients lacked financial sophistication. SVB attracted companies to hold deposits greater than the $250,000 insured maximum by paying roughly 0.6 points greater interest than its competitors. That should have signaled inordinate risk taking (via long-duration securities holdings). But depositors saw only opportunity, not risk—practically the definition of an unsophisticated depositor.

One CFO told me he wasn’t so much responding to the higher interest rate as doing what he saw every other Silicon Valley startup doing. He had no explanation—other than ignorance—for why he didn’t protect his money via Cdars or a too-big-to-fail bank. One might be forgiven for wondering whether IT entrepreneurs learn anything in business school. (Don’t ask me; I’m conflicted on that one.)

This episode points to a continuing failure of regulatory discipline, which lacks the incentives and smarts of the market, to substitute for market discipline. It also points to the need for business managers to learn more about banking, and for the Fed to learn that its own monetary-policy mismanagement for many years has lots of consequences for reducing financial stability. Those consequences include the insidious elimination of interbank discipline by ending the last vestige of informed discipline on imprudent risk management by banks.

Mr. Calomiris is director of the University of Austin’s Center for Politics, Economics and History and a professor of financial institutions at Columbia Business School. He served as chief economist of the Office of the Comptroller of the Currency, 2020-21.

According to him we should scrap deposit insurance altogether.

The better question is what incentive is there for the Fed and Central Banks to oversee finance properly when all the liability for their actions, framework and regulation lies with the depositor who provides all the capital but has no say over these regulations or investments of their deposited money without knowledge or consent?

And more of them here: https://www.wsj.com/articles/svb-silico ... y-bea000cd

Bankers and media are like flies into shit and vice-versa.

[Rancid]

I am not sure that these are "regular people" if 90% of the accounts have more than 250k.

You didn't understand my post. The people that get PAID out of those accounts are regular people. It is pay roll money in those accounts (among money for other things of course). If those people don't get paid because a business (the depositor/SVB customer) can't access their money. This becomes a problem that cascades down to regular people. It's saving the flow of paychecks to regular people that assume, if they work they should get paid. As opposed to saving share holders who took a calculated risk of investing in a bank.

Under normal circumstance, the shareholders would be first in line to recoup money from asset sales. FDIC made it so the depositors are first. A better situation...

I guess you can go down the libertarian path of "Well those people working for those companies should have done their due diligence to understand the risks with the bank their company was using" or something. However, I don't think we should place that burden on people either.

In short, do you think the workers who probably didn't even know their company was using SVB should just be left high and dry?

[Rancid]

For once, we see some semblance of an attempt to help workers. A situation that is better than past situations. Why are we hating this? It's a better situation than ever before.

It's as though people would rather shareholders be bailed out, to satisfy the justification of their rage.

What we have here, is an improvement, and perhaps, from this, we can learn and improve things more in favor of regular people as opposed to the favor of shareholders like it has been done in the past.

I think people are too quick to jump on the hate wagon, as opposed to having some perspective here.