Rescue of SVB was a mistake? sign of worse things to come?

Question

While I'm glad for depositors who regained access to their funds, specially a couple of founders I know who had recently raised money for their startups and nearly risked loss of everything, BUT deep inside I feel the message and consequence of this move is far more troubling and probably the sign much worse things to come!My logic is based on the assumption of US Gov and Banking sector wanting to sweep this under the rug so that the smaller domino wouldn't topple bigger dominos or at least delay it.The rescue move goes against "capitalism" and nature of business. A failing company should fail on the merits of its bad decisions and poor management. Rescues or bailouts signal to the whole industry that it's OK to screw up badly because the GOV is far more scared of perceived dollar value and banking reputation.If the GOV is rushing to bailout a small bank in such hurry then the bigger banks can fully relax knowing their mess-ups probably won't even make it to the media, they'll get bailed out behind closed doors and no one would be the wiser!It just exposed a serious fault in policy and now everyone is exposed to much worse world of hurt!

dougmwne · Accepted Answer

Just to clarify, the bank in question did fail. Their bad decisions wiped out all shareholder value. Probably everyone working at that bank will lose their jobs, including the executives.
All the bank’s customers did make a mistake to trust the bank too much. They should have had hedges and insurance to better manage their treasury. But should it have put every startup out of business over that mistake? Probably not.
But you, me and most other people are detecting a moral hazard here. Some investments of very rich people were protected through collective action of all other depositors. Where is the “skin in the game”?
I think it’s time that we as a society address just how much power the rich have to bend all the rules to make themselves richer. The best possible way to compensate society for this power the rich have, and will likely always have is very steeply progressive tax rates. You may not be able to stop them from raiding everyone’s piggy banks, but you can claw back 90%.

Gibbon1 · Answer

Tip: This is new to you. But ain't new to anyone that's been around the block a few times.Hint: Banking worked that way you think it should off and on for the last few hundred years and it always ends badly. Because fundamentally banks assets are held long while their liabilities are always short. The problem is mismanagement or changes in fundamentals, usually a bit of both can lead to a crunch. And that's just the way it is. And why banks are regulated and insured.

logicalmonster · Answer

It's arguably a good thing if depositors at SVB are made whole by the Feds, but I'm curious about the double standards with how banks vs crypto exchanges are treated when they fail. When a crypto exchange fails, there's been a sort of glee and "I told you so", never any concern for the people involved. Nobody went to bat for these people to (in some cases) even get a portion of their life savings back. If we as a society are saying it's a good thing for the Feds to make depositors in institutions that fail whole, why is this only applying to one form of exchange? If crypto is a legal thing, then I'm not seeing a strong case for treating it any differently by the financial system. Just something that rubs me the wrong way about this case.

sp332 · Answer

It's not really a bailout. Upper management was removed and the bank's assets are being auctioned off.Investors know they're taking a risk, but depositors should be protected. Without that assurance, people would stop putting their money in banks.

hnthrowaway0315 · Answer

I think it shows a three way win: Depositors can get money back, Short sellers grab huge profit, FDIC saves the world. Profit! Just the investors lose.