American Economics Thread

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KYli

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siegecrossbow said:
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If taxpayers won't be impacted then where does the money come from?
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1. The Fed would make available of a new funding program that would allow collateral of $1 to $1 which basically means SVB won't need to sell its treasures at a loss.

2. FDIC would assess the costs of bailing out these banks and impose more fees on other banks in the not distant future.

3. Bank bond holders and shareholders would probably be wiped out.
 
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9dashline

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HighGround

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Protecting SVB depositors, all of whom apparently have deposits greater than $250,000 (amount protected by FDIC) is... suboptimal. The moral hazard here is significant. You're not even protecting the average consumer here really, you're just bailing out people who made a wrong choice.

If you're going to keep hundreds of thousands of dollars in a bank, you should probably pay attention to who is holding your money.
 
K

KYli

Brigadier
Moral hazard or not, American politicians would bailout American enterprises and banks with no hesitation when the needs arrive and doesn't matter who is in charge be it Republican or Democrat. On the other hand, the US with IMF and World Bank would continue to preach moral hazard to other like minded countries and allies and telling them not to bail out their banks or major companies.

US along with EU and Japan have successfully kept other countries down for so long because of double standards. By preaching crony capitalism to useful idiotic countries, the US has been very successful at keeping its hegemony.
 
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HereToSeePics

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HighGround said:
Protecting SVB depositors, all of whom apparently have deposits greater than $250,000 (amount protected by FDIC) is... suboptimal. The moral hazard here is significant. You're not even protecting the average consumer here really, you're just bailing out people who made a wrong choice.

If you're going to keep hundreds of thousands of dollars in a bank, you should probably pay attention to who is holding your money.
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The issue is that 250k is a trivial amount for even a small business with more than a couple dozen employees. With the average US annual salary of 70k, a business with 25 employees will already need half that amount each month to make payroll, and that's not including supplier expenses, utilities, rent, taxes, insurance, etc.

The depositor at the banks didn't make a "wrong choice" - they didn't open an investment accounts or brokerage accounts at SVB or engage in any speculative investments with the deposits, they simply deposited cash which is universally expected to be "safe" absent geopolitical and inflationary factors.

It's just simply not viable for every single business to hire their own accountants to audit the books of every bank they want to use and continuously monitor the bank's reserve ratios and capitalization or move hundreds of thousands of dollars every few months looking for the next "safer" bank. That's why the FDIC insurance fund is a necessary evil tool to facilitate a robust and stable cash banking system by giving the people and businesses an implied guarantee of their money and so businesses can function efficiently
 
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HighGround

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HereToSeePics said:
The issue is that 250k is a trivial amount for even a small business with more than a couple dozen employees. With the average US salary annual salary of 70k, a business with 25 employees will already need half that amount each month to make payroll, and that's not including supplier expenses, utilities, rent, taxes, insurance, etc.
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I don't disagree here. I just don't care. Businesses aren't people.

HereToSeePics said:
The depositor at the banks didn't make a "wrong choice" - they didn't open an investment accounts or brokerage accounts at SVB or engage in any speculative investments with the deposits, they simply deposited cash which is universally expected to be "safe" absent geopolitical and inflationary factors.

It's just simply not viable for every single business to hire their own accountants to audit the books of every bank they want to use and continuously monitor the bank's reserve ratios and capitalization or move hundreds of thousands of dollars every few months looking for the next "safer" bank. That's why the FDIC insurance fund is a necessary evil tool to facilitate a robust and stable cash banking system by giving the people and businesses an implied guarantee of their money and so businesses can function
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That's because these people just expect every bank to be safe. It's fine if people choose not to bank with an established major institution. I personally bank with a credit union myself. But these bank failures should teach these businesses to be more scrupulous next time and the best way to teach people a lesson is for them to lose money as a result of their own choices.

That's what moral hazard is about.

I have no issue with bail outs, given very specific circumstances. In this case though, where most depositors don't seem to be regular people, where the bank is an isolated point of failure, and where there isn't a particular need to intervene (at a glance anyway), bailing out depositors seems irresponsible. If I had to guess, the bail out is a political move because doing otherwise might cause some bad press for the White House.
 
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