Shouldn't the Silicon Valley Bank transaction be called a bailout?

[egbertowillies]

Accounts at Silicon Valley Bank over $250,000 will be made whole. That is a bailout since the FDIC only insured them for $250,000. Whether there will be an influx of taxpayer dollars or some sort of monetary and fiscal shenanigans is another matter.

https://egbertowillies.com/2023/03/13/shouldnt-the-silicon-valley-bank-transaction-be-called-a-bailout/

[onecaliberal]

1. Yes, it is a bailout. But it is not a $10,000 dollar bailout for students loans so it's ok

[lapfog_1]

2. no.

a) the investments made by SVB were extremely safe... bonds... the problem wasn't the bond, but the terms of the bond (10 year, longer). As that saying goes "substantial penalties for early withdrawal". They tried to maximize profits on the deposits by getting higher returns for long term bonds... back in the time of near zero interest rates. Then the Fed started raising interest rates rapidly (the fastest in history) to combat inflation... and those bond yields went south (but NOT THE PRINCIPAL, i.e. what someone deposited). However that created a liquidity squeeze... meaning that if some startup in the valley needed more money for, say, payroll... the bank didn't have it on hand... and to raise the money to meet demand from account holders, they decided to start selling their bonds at a loss... oops. That got out and more people (VC funds that had handed millions to valley tech startups) got nervous... and withdrew their money and that of their startups... all at once ($40 BILLION in 1 day). well, very few banks can deal with that.

So... other than the bonds they sold at an actual loss, the rest of the money is still there... the FDIC/other FLAs will seize the assets and trade short term assets (money market accounts, etc) from other places or just buy them at face value (no interest) and return the money to the account holders. For the small amount of money actually lost by SVB, they will take from an bank insurance fund set up and collected by the government over the years to pay out that money to account holders.

The investors and bank officers and other people with an interest in the BANK will get nothing (except for the bonuses paid just hours before the bank was taken over by the Feds).. We will see what happens to those bonuses... and to the money made by the CEO by selling shares in SVB in the 2 weeks leading up to the failure. I suspect some people will pay heavy fines and in up in prison.

But don't begrudge the startups that had a few million dollars in SVB checking and savings accounts... that is their life blood, they generally are not "billionaires or millionaires" and the people they hire and depend on that money to make payroll are also not rich (don't get me wrong, they all hope to be rich... but almost all of them aren't right now).

so, no, this is nothing like the bailouts of the past. Or the bank failures of the past ( unless you go back to the 1930s). This was a failure of Congress (relaxing the regulations on "small banks&quot , the Regulators (who could have stress tested the bank), and the bank officers (who tried to maximize profits in a low interest rate economy but forgot rule number 1 - diversify and be nimble, conditions can and do change)

[tirebiter]

3. We've entered a complicated new era of bank bailouts

Did the government just bail out banks again? Yes-ish. But this isn’t 2008…

… The White House has been emphatic in its emphasis that this isn’t a 2008 situation. SVB and Signature aren’t going to be revived, and their lenders and shareholders aren’t getting any government money. The money for depositors will come from a fund that banks pay into, the Deposit Insurance Fund, and not from taxpayers. (Treasury could have to backstop the FDIC fund or the Fed’s loan program funds, but it’s quite unlikely.)…

What is it you feel the need to focus on?

[PortTack]

4. It's my understanding SVB assets will be sold to cover losses