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Started By
Message
Bill Ackman: Government has 24 hours to fix Silicon Valley Bank debacle
Posted on 3/12/23 at 12:09 pm
Posted on 3/12/23 at 12:09 pm
quote:
@BillAckman is right. There are two systemic crises underway right now:
(1) Startup Extinction Event - thousands of startups and small businesses won’t be able to make payroll and will immediately need to furlow or layoff employees if the FDIC does not release at least a substantial portion of their deposits on Monday. Payroll is Wednesday for most companies. That is D-Day. Directors in California are personally liable for unpaid wage claims so the layoffs will begin immediately if FDIC does not announce a plan to release funds.
(2) Regional Banking Crisis - the contagion will spread and there could be runs on other banks if the Fed does not provide reassurance that deposits are safe. As Larry Summers said, this is not the time for lectures on moral hazard. The stockholders and executive options of SVB are going to be wiped out — that solves the moral hazard problem. Blaming depositors is like placing the blame for medical malpractice on patients because they didn’t do a good enough job shopping for a doctor. Depositors expect the Fed to ensure that banks are safe. Even Bill as a very sophisticated investor says he has a hard time evaluating bank balance sheets. It’s unrealistic to expect small businesses to do that.
In summary, the Fed needs to bearhug the situation. Announce that all deposits are safe. End the crisis. It will cost very little, if anything, because SVB actually has plenty of assets to pay off depositors. The costs on the banking system and economy will be far greater if they under-react. The banking system will further consolidate in the hands of a few “too big to fail” banks. None of this will help the little guy
@DavidSacks
24
Posted on 3/12/23 at 12:11 pm to Street Hawk
frick moral hazard, amIrite?
Posted on 3/12/23 at 12:12 pm to Lsupimp
Lol Bill Ackman. So what market bets can he profit off of this time? Will he go on CNBC to tell us he’ll is coming again?
Posted on 3/12/23 at 12:13 pm to Street Hawk
quote:
Bill Ackman: Government has 24 hours to fix Silicon Valley Bank debacle
“I lost a shitload of money here.”
Gfy Bill.
Posted on 3/12/23 at 12:13 pm to Street Hawk
FDIC is paying out tomorrow, but it sounds like the bulk of the money in SVB is over the insured limit.
Posted on 3/12/23 at 12:14 pm to grizzlylongcut
quote:
“I lost a shitload of money here.”
Exactly
Posted on 3/12/23 at 12:14 pm to mule74
Can someone explain this to me like I’m five?
Posted on 3/12/23 at 12:18 pm to Street Hawk
quote:
It will cost very little, if anything
It always costs “very little, if anything”.
Posted on 3/12/23 at 12:21 pm to Street Hawk
quote:
Bill Ackman: Government has 24 hours to fix Silicon Valley Bank debacle
About half the money lost was private equity gambles
Let them fail
250 should cover the middle class folks till they can be made whole
Posted on 3/12/23 at 12:22 pm to CocomoLSU
quote:
Can someone explain this to me like I’m five?
SVB was a well known bank that had a lot of VC and startup deposits so they had a sector concentration. Two things killed them.
1. As rates have gone up most of these start ups have started to have larger cash burn issues because funding isn’t cheap anymore. This reduces your deposits.
2. Banks are required to keep a certain reserve of deposits on hand so as you lose deposits you eventually have to sell some of your investments or loans to get money. SVB invested in US treasuries with several year durations. As rates have gone up the value of those goes down (because new t bills pay more). So they had to sell and take a $1.8B loss.
This triggered a bank run by VCs so the bank ran out of cash (or was going to) and the FDIC took them over to figure out a game plan. Now the VC’s have all realized they threw all their cash in one bank which is only insured to $250k so they’re screaming to get bailouts claiming the end of the world is coming if we don’t. Which no isn’t happening. Worst case if the assets were sold off uninsured deposits probably AT WORST get 80 cents on the dollar. Most likely though a bank buys them and they’ll be fine. Just more sky screaming from people who probably last year were telling us how the government shouldn’t be involved in things.
Posted on 3/12/23 at 12:24 pm to CocomoLSU
quote:
Can someone explain this to me like I’m five?
Basically SVB was doing normal banking things, but because they were focused mostly on the tech industry, that lack of customer diversification hit them hard with what's been going on in tech.
quote:
Silicon Valley Bank met its demise largely as the result of a good old-fashioned bank run after signs of trouble began to emerge earlier this week. The bank takes deposits from clients and invests them in generally safe securities, like bonds. As the Federal Reserve has increased interest rates, those bonds have become worth less. That wouldn’t normally be an issue — SVB would just wait for those bonds to mature — but because there’s been a slowdown in venture capital and tech more broadly, deposit inflows slowed, and clients started withdrawing their money.
On Wednesday, March 8, SVB’s parent company, SVB Financial Group, said it would undertake a $2.25 billion share sale after selling $21 billion of securities from its portfolio at a nearly $2 billion loss. The move was meant to shore up its balance sheet. Instead, it spooked markets and clients. The share price of SVB Financial plunged on Thursday. By Friday morning, trading of the stock was halted, and there was reporting SVB was in talks to sell. Big-name VCs such as Peter Thiel and Union Square Ventures reportedly started to tell their companies to pull their money out of the bank while they could.
LINK
Posted on 3/12/23 at 12:31 pm to Street Hawk
Yellin has already said the Fed will make sure to make whole those accounts $250k and under, but to the bank's board/owners...
Posted on 3/12/23 at 12:33 pm to Street Hawk
Sorry, but all the money has been sent to Ukraine.
Posted on 3/12/23 at 12:36 pm to Cheese Grits
quote:
About half the money lost was private equity gambles
Let them fail
Absolutely.
Stop bailing out investors, depositors and banks.
An economy cant work at all if there's no repercussions.
Posted on 3/12/23 at 12:36 pm to Street Hawk
I generally agree with David Sacks but he’s too close to this
Posted on 3/12/23 at 12:39 pm to Street Hawk
Frick him and frick SVB.
Their employees got their bonuses right before the bank went belly up, but account holders got locked out.
Their employees got their bonuses right before the bank went belly up, but account holders got locked out.
Posted on 3/12/23 at 12:40 pm to TigerinOkieHell
quote:
So they had to sell and take a $1.8B loss.
Is that a real loss, or is it just that they got their principal back and lost the expected future earnings?
Posted on 3/12/23 at 12:43 pm to TigerinOkieHell
quote:
Now the VC’s have all realized they threw all their cash in one bank which is only insured to $250k so they’re screaming to get bailouts claiming the end of the world is coming if we don’t. Which no isn’t happening. Worst case if the assets were sold off uninsured deposits probably AT WORST get 80 cents on the dollar. Most likely though a bank buys them and they’ll be fine. Just more sky screaming from people who probably last year were telling us how the government shouldn’t be involved in things.
Fantastic. So I’ll just go on living my life then. Thanks for the explanation.
Posted on 3/12/23 at 12:50 pm to RogerTheShrubber
quote:
An economy cant work at all if there's no repercussions.
Neither can a civil society. Hmmm…
Posted on 3/12/23 at 12:57 pm to cssamerican
quote:
Is that a real loss, or is it just that they got their principal back and lost the expected future earnings
It would be realized. So imagine I buy a $100 bond paying 1% interest annually for ten years. So simplistically it is going to total payout $110.
Now let’s say rates rise and the same bond now pays 5%. Now the new bond will total payout $150.
If I now try to sell my old bond, I won’t get $100 for it. I’ll have to take a discount to account for the fact the buyer won’t get as much interest. So instead I may get offered $60 for it and if I’m desperate enough for cash I may have to take it.
This is where bond buying can kick your arse. If you can hold to maturity then this doesn’t matter. It’s when you’re forced to sell for cash flow that you can hit issues.
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