No. of Recommendations: 27
I've written about the situation at length on my website (which I am in no way trying to promote, but also do not want to reiterate at length in a message board format).
As I see it, the system was working as designed on Friday evening when the FDIC issued this press release regarding Silicon Valley Bank:
https://www.fdic.gov/news/press-releases/2023/pr23...At this point, the plan was for all insured deposits to be made whole on Monday morning, up to the $250,000 limit. The FDIC clearly stated the following with respect to uninsured deposits:
"The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors."
Uninsured depositors were to receive an advance this week along with a receivership certificate and would receive recovery of funds over time as the FDIC wound down operations.
This news caused venture backed firms with concentrated uninsured deposits to raise hell -- on social media, with politicians, with regulators, the works. They were joined by billionaires like Ackman. All kinds of hyperbolic comments like losing a generation of the finest minds in the valley due to missing a payroll were parroted out relentlessly. All weekend. By Sunday, the government announced a bailout of unlimited deposits because the clamor had gotten to the point where Ackman and his ilk were predicting widespread bank runs if the government didn't act.
In my view, the resolution announced on Friday would have worked absent the manufactured panic over the weekend. There were already stories of founders coming up with their own funds (new capital) to make payroll. VC firms were going to inject equity in their most promising startups. There was no way in the world VCs were going to allow otherwise promising startups to lose all value by abandoning them in a liquidity crisis.
Over time, the startups would have made substantial recovery, as the bank did have assets that even at fair market value would have funded significant recovery. And founders and VCs would have woken to the fact that they should use more prudent money management approaches.
By backstopping all depositors, the government really bailed out the VC industry. The situation has also precipitated a widespread easing of monetary conditions as treasury rates have plummeted and the Fed is being pressured to halt rate hikes or even ease. I suspect this was a motivation of many of those fomenting panic.
I never said that the FDIC should have done nothing -they were acting as appropriate. Nor did I suggest that we would be better off in the pre-Federal Reserve era (a total straw man).
I regret having started posting here and will not make that mistake again. Honest debate is fine. Distortion and straw man arguments are not. Life is too short. I have no incentive to get into that kind of crap, not here, not on twitter, and not anywhere.
Best of luck to all.
