Subject: Re: SVB bailout
What do you think would have happened if the Fed had done nothing?

These are straw man arguments. Waste of time.

Here's What the Wall Street Journal was saying last Saturday :

But if SVB was doomed, it is bet­ter to let it fail than have the gov­ern­ment bail it out, de­spite what one hedge-fund lord sug­gested this week. Didn't we learn from the 2008 cri­sis that the feds' res­cue of Bear Stearns en­cour­aged every­one to be­lieve that Lehman Broth­ers would be res­cued too?

There doesn't ap­pear to be any ob­vi­ous systemic risk to the fi­nan­cial sys­tem from the SVB and Sil­ver­gate fail­ures, and mar­ket dis­ci­pline needs to pre­vail un­less there is dan­ger of a larger fi­nancial break­down. SVB in­vestors and cus­tomers ben­e­fited from the gov­ernment's easy money. Why should they also ben­e­fit from a gov­ern­ment life­line af­ter tak­ing risks with that easy money?

Straw man? I don't think so. I saw this viewpoint echoed in several places, it was a common theme among the Austrian economists who apparently still haven't learned the lessons of 1930.

Or as before the emergence of the Fed over a hundred years ago

I guess I can forgive the ignorance of some of the actors in 1930, but to continue the adherence to a doctrine so fundamentally destructive a century later is head-scratching, to say the least.

Liquidate labor, liquidate stocks, liquidate real estate,' Treasury Secretary Andrew Mellon may or may not have told Herbert Hoover in the early years of the Great Depression. 'It will purge the rottenness out of of the system.' This is what has since become known as the 'Austrian' view (although most of its modern proselytizers are American): economic actors need to learn from their mistakes, 'malinvestment' must be punished, busts are needed to wring out the excesses created during boom times.

Within the economic mainstream, there is some sympathy for the idea that crisis interventions can create 'moral hazard' by bailing out the irresponsible. But the argument that financial crises should be allowed to wreak their havoc unchecked has few if any adherents. As Milton Friedman put it in 1998:
https://hbr.org/2013/09/why-we...

In other groups I have used Berkshire's immense cash hoard, rolling over mostly with short term liquidity as an example of how this sort of risk should have been managed . That it wasn't by some supposedly sophisticated bankers pains me, and I hope that the shareholders will be wiped out and the accelerated bonuses clawed back, but I don't see the point in punishing 'innocent' bystanders, even if they are not as perfectly innocent as one might hope.