OT - US Treasury Direct
As you may have heard, the 2nd largest bank failure in US history occurred today - https://www.reuters.com/business/finance/global-markets-banks-wrapup-1-2023-03-10/
Little tip I learned from my Dad (the real master of coin) - the only entity that's safe enough to hold >= $250K cash is the United States Treasury.
The 1-Month US T-Bill presently yields 4.7% - https://www.cnbc.com/quotes/US1M
You can open a Treasury Direct account and buy the bonds yourself, it's very easy - https://www.treasurydirect.gov/
Do they take mgopoints?
Your advice is ok, but you don’t seem to have an understanding how modern bank failure works. FDIC contacts another bank who assumes control of the assets of the defaulting bank. Almost no one loses any money regardless of FDIC limits. Happened over and over in 2008, most people who lost money weren’t depositors. They stock holders of the belly-up bank however…
So everyone comes out 100% whole? When do withdrawals open up again - six months from now? In the meantime, payrolls and mortgage payments are being missed.
I Googled Washington Mutual (2008 bank failure) - https://www.thebalancemoney.com/washington-mutual-how-wamu-went-bankrupt-3305620
You may be right. But to be frank, there is only one bank I trust - JP Morgan Chase.
That's the worry here. A lot of companies kept their cash in SVB. The people who will be affected most are the ones who can afford it the least.
Withdrawals will start next week. It's a relatively orderly process, although I'm not sure depositors actually will be made whole, maybe more like 95%.
Not everyone. And in particular Silicon Valley apparently has lots of customers that are not FDIC insured; they are not guaranteed to recoup everything or anything.
FDIC insures private deposits up to $250k, which covers most “regular people.” I banked with Wamu at the time they failed and it was basically seemless to us; there was never a point where I could not access my money or even worry about it. Of course, by that point on the financial crisis, bank failures were somewhat common and people basically understood what would happen.
The bigger problem for “regular people” is that a lot of tech firms banked with Silicon Valley and payroll may be a real problem. Already hearing of a few issues there.
Direct deposits are temporarily suspended for several payroll processors, my processor being one of them.
Additionally, tax withholdings withdrawals are suspended until they can find another bank to hold, safely, those deposits for subsequent transmittal to the Fed.
There are some concerns about payroll but from my reading they were more along the lines of a delay rather than a loss. The FDIC insurance, as you noted, fully cover you and me types with deposits under $250k but that wasn't most users of the bank. But the FDIC creates that secondary bank entity to handle the sell-off of SVB's assets (which seem to mostly be bonds) and they'll ultimately use that to make the depositors mostly whole. And in terms of payroll my guess is companies will be able to get bridge loans to cover those costs if necessary.
The bigger issue, in my eyes at least, is that SVB didn't properly handle the rate hikes recently and never got around to diversifying their depositors so better protect against a situation like this where their customers need access to their money at this scale. This wasn't some market shock - rates have been steadily increasing for a year now. But from what I've gathered SVB seemingly played fast and loose with cash on hand and tried to maximize their returns on stuff like government bonds so when a critical mass of their customers needed money (as VC funding has dried up with higher interest rates) they were caught with shallow pockets. That really shouldn't have happened and a better monitoring and risk assessment infrastructure at the bank would have done a better job handling it.
This has little to do with FDIC insurance. The bank essentially failed because of a liquidity crisis, not because it doesn’t have any assets. Those without FDIC insurance will likely be made whole - or very close to whole - and it sounds like they will have access to their funds this coming week.
MGoArchive, WaMu and other banks run by idiots were sold off to places like Chase and Bank of America and the deposits were all covered regardless of value. If you recall, the people who got truly fucked in 2008 were homeowners with variable mortgages. Those were people without equity. America fucks debtors, we don’t fuck people who own things (yes, I know username checks out but I’m also right)
COMMIE! COMMIE! TRAITOR TO OUR COUNTRY!
ONE OF US!!! ONE OF US!!!
YOU TAKE THAT COMMIE CRAP RIGHT OUTTA HERE!
If you recall, the people who got truly fucked in 2008 were homeowners with variable mortgages.
They kind of deserved it.
It was ignorance, not malice, but betting with leverage on an asset appreciating infinitely is always going to bankrupt you eventually.
Same personality types moved on to leveraging Forex and Crypto
I think the “kinda deserve it” is really harsh. These mortgages were being aggressively sold with little acknowledgment of the risks and brokers basically saying there is no risk. Home owners put a certain level of trust in their bankers/brokers to do the right thing for them as customers. We can’t all be experts in all things. To expect the average US resident to know the intricacies of the mortgage industry when the expert they have hired to assist them is blowing sunshine up their asses isn’t fair.
Trust bankers to do right? LOL
This doesnt apply to everyone but the % taking out $300K+ loans without a credit or income check probably knew "something" was amiss with their honest banker/broker.
I actually kind of agree that the people with the crazy mortgages should have known it was too good to be true. But they share the blame with the banks, but the bankers were bailed out and the people with the mortgages were not.
March 11th, 2023 at 11:45 AM ^
The people with the mortgages weren't just 'not bailed out', they were outright FUCKED. The intention of the relief measures were meant to reset the mortgages to an affordable rate and more appropriate value to give people a chance at keeping their homes. But the banks didn't do either - they slowed played applications by often sending them back for updates or corrections without notice; rejected them for dubious reasons related to the information they wanted (ie: they required a written explanation of why you were in this position, how you'd get out of it, and how you'll stay out of it - if you didn't have help with it or were not a good enough writer to make it look professional and smart, forget it); delayed processing until people just couldn't hold out any longer; lied to people (told many they didn't have to keep paying while the app went through - I was actually told this by the lender and told him to fuck off I'll keep paying, thankyou); and more often than not rejected them because people had more credit issues because of a ballooning mortgage during a shitty economy.
The banks - the people with $$$money$$$ - were not only bailed out, they were abjectly allowed to gain at their customers expense yet again. They bastardized the process, skirted the rules, and actively fucked people over - yet the gov't stood by and let it happen while congratulating themselves on passing the 'relief measures' like they were actually working as intended.
I'm not a mortgage broker, an investor, or a banker. I don't make a living in the financial industry and I have little interest in it. A lot of people don't have any interest in my field and know nothing about it (how to deliver, secure, and run a server farm). Millions of people hire lawyers every year to handle legal issues in their best interest because they don't know anything about law - and nobody bats an eye.
I hired a mortgage broker to handle a financial situation in my best interest - and I get blamed when the asshole fucks me. Walmart Wolverine can fuck all the way off with his take...
(To close, I wasn't nearly as bad off as most and kept my home quite easily. But I have no love for any banker...)
I generally agree with your last sentence, but shareholders of SVB (SIVB) are big losers here too. They will end up losing a lot more than almost all ordinary depositors
Shareholders, who gives a fuck about shareholders. Stocks are speculative by nature, being a shareholder is assuming risks. If shareholders get fucked before everyone else, fine. However, the reverse is actually how this country works.
Not true. Common shareholders always are last to benefit from a failure.
March 11th, 2023 at 12:53 PM ^
As well they should. That is the risk of being a shareholder. If someone does not grasp that concept, then they have no business owning stocks in the first place.
GM shareholders didn’t do too well back in 2008.
March 10th, 2023 at 10:23 PM ^
Neither did Lehman shareholders, with employees having had a significant chunk of their net worth in lehman shares
I give you student loan "forgiveness". Fuck them little people, fuckers. Ask my brother in law the Master Welder how he feels.
Student loans are the only type of debt that can’t be forgiven as part of a bankruptcy. Student loan providers not only borrow money to students for tuition, but also for most other things they need (housing, food, whatever).
At the same time, an entire generation of students have had to borrow multiple times more than any previous generation. This also does not require the federal government to pay toward loans, but simply forgives debt. Your brother in law can file for bankruptcy and wipe the slate clean.
Student loans aren't dischargeable in bankruptcy because there isn't anything securing the loan. Default on a mortgage, you can foreclose the house. Default on a car loan, you can repossess the car. But you can't take back a degree. The non-dischargeable provision is the only thing incentivizing lenders to give out student loans. Otherwise you could have waves of people take out these massive loans and then declare bankruptcy right after graduation, and with most of those borrowers having little to no assets to collect against, the lenders would be eating the losses. Not an attractive proposition.
So if you want lenders to actually be making loans to students who don't have assets to collateralize, the non-dischargeable provision is here to stay. Otherwise you're looking at a world where only the well-off are eligible for student loans...
Get rid of student loans altogether and I'm pretty sure you will see a drastic drop in cost to attend college.
You'd also end up with a bunch of smart kids kept out of top colleges because their parents are poor. I'm also not sure you can ban student loans or how you would even go about that.
That's where we're headed anyway. Once again the government and their geniuses throw money at something to appear like they're doing you a favor, except it's largely screwed an entire generation. Easily available student loans were supposed to get poor and more minorites to college, and now....
March 13th, 2023 at 12:19 PM ^
Not enough of an expert, but what happens with credit card debt? That is not a secured loan. As far as I know if you declare bankruptcy you don't have to pay back the credit card debt. Why are student loans in a category of their own for unsecured debt?
Slava Ukraini!
Generally banks are closed after COB on Fridays and reopen on Mondays with access to the insured funds at the purchasing bank. WAMU and SVB are exceptions to that in part due to size and also since both had effectively run out of liquidity. That money may or may not be available over the weekend depending on the circumstances. It's usually a pretty minor impact for insured depositors. For uninsured funds over $250K yeah, you would be dependent on the resolution process to liquidate assets and then distribute as cash or more typically there is a P&A in place for assets and liabilities before closure. The uninsured depositor resolution part can take months, especially in the case of a larger and more complex institutions.
Anyone with over $250K in a single account type at a single bank should be considering diversifying across banks, perhaps across account types, or considering reciprocal deposit products. Well, you should actually be doing some other things and taking to a financial advisor but at the least there are easy ways to get additional FDIC coverage without too much work.
They did specifically write amounts greater than $250k.
Diversify. Silicon Valley Bank managed a little over $200b in assets, they put nearly all of their eggs in one basket, and when tech layoffs started happening, they were doomed.
They were doomed because they invested Silicon Valley deposits in relatively boring long-dated fixed income securities. The Fed raised rates, killing the value of those securities, at which point SIVB was getting found by strangers in the Alps.
Yes this
The IV pump into the veins with free money for a decade plus distorted the market. Rising rate environment? What the hell is that? One that lasts more than 9 months before Wall Street whines and demands rate cuts or else! What's that?
They were invested in theoretically the most safe asset on earth. The value of that asset just plummeted because a bond yielding 0.4% for 30 years isn't really attractive vs what is being pushed out now for 2 years forget 10 or 30.
March 11th, 2023 at 12:50 PM ^
When interest rates were that low, it made very little sense to invest in such long treasury bonds. Only way they appreciate is if we had negative interest rates.
March 11th, 2023 at 12:56 PM ^
Exactly. You'd be a fool to lend the government money at 0.5 or 1% for 30 years, knowing inflation was certainly headed upward.
That's part of it but it's more of a story about panic and overreliance on uninsured deposits. I believe at 12/31 they were at 89% of deposits as uninsured. Those depositors are at some modest risk of loss but have large liquidity risk in the event of closure as funds are tied up until resolution. So when liquidity tightened and the bank took the securities losses and it became public on Wednesday, the tech sector (led by Thiel) decided to pull their money. They had $42 billion in outflows in Thursday, something in the range of a quarter of deposits. In some sense that makes sense on an individual basis to try to preserve your access to funds, but it also creates liquidity runs a failure that likely would not have occurred otherwise. Now of course you layer huge unrealized depreciation and excessive duration with MBS and negativity convexity on a tech sector pullback and then an epic deposit run you get failure.
Also, if you have over $250k in straight cash in one account at a bank just sitting there in this inflation environment you deserve to lose it because you are a dumbass.
You are just jealous that he has so much cash! :)
On another note, some of my friends were talking about this and it felt weird listening to people talking about half a million in cash equivalents. Good for them to have such an amount of money.
Bro could also set up a trust with your spouse or someone else and get $500k per account of FDIC. Get 3 banks and you have $1.5M with one trust. I mean, I’m a dumbass and I know this.
I disagree with this. I keep about 250k in cash in my bank account for rainy days. This has helped me a ton in not having to sell stocks during a bear market. Yes, the loss on value due to inflation isn’t great. But having the liquidity is nice. Also, it depends on total investments. But for some people, it makes sense.
Are you Elon Musk? I’m well off, but I don’t have 250k in a rainy day fund.
Perhaps he is Dave Ramsey. Elon is broke after Twitter's purchase.
You missed his point, which was about keeping an amount over the FDIC insurance limit with one bank, when there are simple strategies available to have much larger amounts FDIC insured and thus risk very little (or nothing, barring a complete collapse of the system.)
March 11th, 2023 at 12:48 PM ^
Are you 90 years old? Otherwise this is a bad strategy