No, but the median salary for a software engineer is still 120k, a little under double the median salary across all industries.
It's hard to dredge up deep, deep wells of sympathy for folks who were already playing the salary game at double the value of half the players. One can't escape the sense that if they've done the kind of budgeting that a regular American does, they will be fine.
Besides the trivially obvious recognition that people other than engineers work at companies (cooks, janitors, HR, etc.), realize also that, for example, Etsy’s sellers may be affected since the account used to pay them was at SVB. Of course, I’m sure someone here will explain that obviously some lady selling bowls in Michigan should have done due diligence on her platform’s bank of choice to make sure that they didn’t have any maturity risk. Anything short of that really just fundamentally represents business incompetence and deserves to be wiped out since Peter Thiel decided to cause a run at the bank two layers removed from her. But that will teach the correct lessons and punish the right people! Clearly Thiel should be rewarded for prudently advising everyone to remove all funds, while janitors and craftspeople on Etsy alike will finally learn the importance of marking to market treasuries.
Actually, for almost all of these companies, cooks, janitors, etc are contracted employees and work for the contracting company, not the startup. The startup retains a contract for services.
This allows them to keep those employees at arm's length and not have to pay the kind of salary and benefits that their "real" employees enjoy. It has also great bonuses in that if the "real" employees want to abuse the snot out of those contractors (including really vile stuff, obvious violations of the equal employment act), the tech company and the contracting company are heavily incentivized to "solve" the problem by removing the contracted employee from the position. Employees in that position, should they want to take action, have to go through multiple layers of red tape and ambiguous responsibility and risk upsetting the apple cart for all of their peers, because the tech company is always at Liberty to cancel the entire contract to avoid a "problem" contractor.
The whole system is a little bit rotten.
And yeah, it sure does suck for folks who are going to get bit as clients of Etsy because Etsy didn't hedge bets. Maybe Etsy learned a lesson.
It really sucks for Etsy’s sellers so maybe… Etsy learned a lesson? Here’s the confused lesson by association argument again. The majority of your argument is around learning lessons, but you momentarily acknowledge that perhaps there are in fact people hurt here who it would be hard to accuse of deserving it due to a lack of due diligence, but you then immediately resolve the cognitive dissonance by reassuring yourself that perhaps that will make the lesson Etsy learns that much stronger.
The majority of your argument revolves around the idea that only rich people in this “rotten system” will be affected, or that this is an important lesson. When it’s pointed out that there are many types of employees who aren’t rich, you say they don’t count because they’re contractors, ignoring that even if true, which I’m not necessarily granting, it still doesn’t matter since that contracting job will still probably disappear and there is a high likelihood that they can’t just be immediately positioned somewhere new. The rich developer may have an easier time landing a new position than the cook getting a new shift from the contracting company somewhere new. But I suppose that’s irrelevant, because the point about cooks being contractors actually had nothing to do with the topic at hand of whether they deserve to be colateral damage. Rather, it was meant to derail the conversation into a long digression about how these contracting agreements further prove how “rotten” these startups are… and thus deserve to learn a lesson about treasury performance.
> It really sucks for Etsy’s sellers so maybe… Etsy learned a lesson?
I hope so. I don't expect the sellers to have done anything different. Corporations, however, have a responsibility to manage their finances effectively. "We weren't smart enough in that space" is no more an excuse than it would be if sellers were having problems because Etsy's web infrastructure broke down due to lack of proper planning for redundancy and fault tolerance.
And I never said nor implied that only rich people will be affected. But they're basically the only ones with power to do anything different here. The rest of us are along for the ride.
Here's the question. Now that this happened, do the rest of us just accept that this is how it works? Because if we do, nothing changes, and we just get to sit back and wait for the whole system to unspool again. Or, we could stop treating the machine in California like it's better than a Vegas slot machine for most players and start building something better.
> I hope so. I don't expect the sellers to have done anything different. Corporations, however, have a responsibility to manage their finances effectively.
Just so I understand correctly, if the seller has an LLC they made through legalzoom.com for their Etsy bowl business (which is very common and highly recommended), then does your sympathy for them immediately evaporate since they now have a “responsibility to manage their finances effectively”? Why exactly is the Etsy seller off the hook in this scenario? Is it a headcount requirement? If the Etsy seller LLC is 3 people (two sisters and their mom), now are they irresponsible for using Etsy? Are all those 3 person startups in YC different somehow? Only in that they make “useless” things and the Etsy people make “useful” things, and that translates to whether a corporation needs to be responsible?
> Here's the question. Now that this happened, do the rest of us just accept that this is how it works? Because if we do, nothing changes, and we just get to sit back and wait for the whole system to unspool again.
Accept that what is how it works? It depends on the solution. If the solution is providing temporary backstops to depositors so that a sale to another private bank can be more attractive, then I don’t think that’s anything earth shattering to accept? Especially considering it would probably result in a private solution happening faster at little to no cost to the taxpayer. If congress empowers the FDIC to claw back SVB share sales to help make depositors whole, I think that’s also not anything that people would have a problem accepting? Like part of the problem here is that completely different parties are lumped together and in this fury the only acceptable answer is “no help!” No one is arguing for SVB to be bailed out. Those shares are going to zero. That is a sufficient market result. Enabling a bunch of assets that still have value to be maximized to avoid the philosophical dilemma of our Etsy seller doesn’t seem to be the “end all” nightmare scenario it’s being chalked up to be here. If anything, maybe the focus should be on plummeting interest rates to zero making precisely the kinds of “full liquidity paid for checking accounts” become an endangered species in the first place. Or maybe then raising rates at break neck speed despite having questionable results on the inflation they’re targeting, while clearly affecting random pieces of the economy.
> Or, we could stop treating the machine in California like it's better than a Vegas slot machine for most players and start building something better.
It seems like choosing a random 30% of Silicon Valley companies to put in hard mode is a close approximation to the Vegas slot machine than fad imitating zero interest checking accounts that were in no way high risk irresponsible investments that had the chance to wildly benefit the depositors if the bet would have “paid off” vs. if it crashed to zero. Especially given the high likelihood that there are sufficient assets to make depositors either whole or almost whole, it seems even more the case that those disproportionately affected will be workers, and not companies. Not to even mention the fact that those most responsible (Thiel) aren’t going to suffer, nor are the mega tech companies that can easily survive this, and may even end up just absorbing some of these companies and consolidating even more.
I am super curious as to what “something better” looks like though. Because right now, the world 6 months from now where a random subsection of tech and wine workers had their year ruined, while big tech companies and VCs are still doing just fine, doesn’t exactly seem like fertile ground for whatever amazing new system you have dreamed up.
Headcount and age. Etsy is a +1,000 employee company that's been around over a decade. Practically bedrock by Valley standards. I personally draw the line between "small" and "big enough to know better" at 100+ employees (around where the EEOC draws the line for mandatory reporting). I acknowledge people may disagree on this topic; that's where my line happens to be.
FWIW, I don't disagree on the mechanics of your suggestion for back-stopping SVB enough for most folks to be made whole. I'm more concerned about the mechanisms that led to one bank becoming such a linchpin for the whole system. We should have learned about "too big to fail" already.
> It seems like choosing a random 30% of Silicon Valley companies to put in hard mode is a close approximation to the Vegas slot machine.
Yes... That's what SV just did to its ecosystem due to over-reliance on one bad bank because "optimization is king" is the mantra of the whole machine. For us to not find ourselves in this boat again in 20 years, the people with money power in SV need to un-learn the lesson that's been driving SV for decades. Someone needs to be less-than-optimal for the system to not be so fragile.
> Headcount and age. Etsy is a +1,000 employee company that's been around over a decade. Practically bedrock by Valley standards. I personally draw the line between "small" and "big enough to know better" at 100+ employees (around where the EEOC draws the line for mandatory reporting). I acknowledge people may disagree on this topic; that's where my line happens to be.
To be clear, Etsy is not my concern here. They will probably survive just fine regardless of whether we deem them to be responsible or not. That's part of the point. The sole question was the sellers, and trying to examine why they inspire more sympathy to similar-sized companies that may be directly banking with SVB. Hence my question of whether the mere existence of a legal entity is the difference, given that in fact many Etsy sellers do of course have simple LLCs set up. I would fine "Hey, Etsy sellers need to look into Etsy's bank to be responsible too" consistent with "3 person YC companies need to be responsible about the bank they choose", or acknowledging that's a tall order for both. But not one and not the other, was my only point here.
> Yes... That's what SV just did to its ecosystem due to over-reliance on one bad bank because "optimization is king" is the mantra of the whole machine.
If it puts your mind at ease, I think the result is going to be the same regardless of what happens to depositors: everyone now will try to spread out their money and sweeps will become part of startups 101, etc. In that sense, the system has worked: the irresponsible bankers are being punished, they and their investors lost their bank. I promise no one is going to wake up and say "well, glad that got magically solved" and not be super paranoid going forward. If anything, if depositors aren't made whole, this particular demographic is more likely to, to your point, over-optimize in that direction (perhaps create investment vehicles to short regional banks or something, who knows).
> The majority of your argument revolves around the idea that only rich people in this “rotten system” will be affected, or that this is an important lesson.
I think the main issue is that the status quo is that more often than not such classes never learn any lessons, so people are cheering on any hurt they receive, no matter who else gets in the way. Discontent is such a state that people are becoming, as they say, Jokerfied.
That's not the situation here. Etsy holds seller payments in SVB in an account, that yes of course, is probably above the FDIC 250K limit since it represents the amount to be paid out to hundres if not thousands of sellers: https://www.nbcsandiego.com/news/business/etsy-warns-sellers...
Without derailing the discussion into whether Etsy "should have known better" (which to be clear is an argument that would be made in a simplified vacuum given the complexity of them probably just being an intermediary between a credit card processor and the sellers and thus it being fairly logistically complicated to set up that intermediary as some sort of multi-bank-account system or whatever), but regardless, even if that is the worst way to do it in the world, the point is that that's not the individual sellers' fault, and they shouldn't be punished for it. Again, as I mentioned in my comment, the position that "Well individual Etsy sellers should really do a financial analysis on the host platform's bank, quarterly, to account for interest rate changes, and if they independently conclude that that bank is unhealthy, they should pull their store off Etsy and... ???" is a bit hard to swallow, and I'm not sure if a world we really want to create.
> It's hard to dredge up deep, deep wells of sympathy
This, by the way, is why ordinary Americans are suffering while the billionaires are winning and laughing at us. They have us fighting with each other for scraps. $120k/yr after taxes doesn't go very far at all for a family of four. Kids eat a lot of food! Sure, it goes roughly twice as far as $60k/yr does, and, saved wisely and not spent on yachts, cocaine, and girls, provides a bit more of a financial cushion in case of a calamity like the one we're in, but SVB's CEO made $4.8 million last year, which, budgeted by a regular American, is enough for several lifetimes. A software dev making $120k/yr, he is not.
Have however much sympathy you can muster for software developers who, yes, have more than you do, but don't lose sight of the bigger picture.
We could break the system if we wanted to. Were software engineers to unionize alongside the contracted employees, it would provide a front that would make it basically impossible to operate startups without dealing more fairly. You can't run a business that has a building without someone collecting the trash, sweeping the floors, and keeping the whole thing from falling down. Worst-case scenario, fouhders decide to try and operate with-from-home employee teams to decrease contractors needed, and then the engineers win anyway.
... It won't happen because we don't want it to. But it could.
Especially for the startup end of things, where we are aiming to disrupt other businesses.
Should we have a strong safety net, so that people who lose their jobs due to market disruptions or executive mismanagement do not suffer? Absolutely. And if it's currently inadequate, by all means let's improve it.
But I think it's wrong to try to protect jobs through government subsidies to industries where execs made bad choices. Which is exactly what a lot of people are apparently asking for when they're asking for depositors to get retroactive free deposit insurance here.
We can absolutely be a society in which checking accounts are a pit of snakes which must be navigated by executive savvy and wit. It’s just going to be a much poorer one. The point is not to “protect jobs in Silicon Valley” per se, it is to maintain banking infrastructure as the sort of thing that just works (or gets urgently fixed) so that the entire economy can continue to rely on it, vs. entering a lower-trust regime where a checking account may as well be a stock portfolio.
The FDIC already exists to make sure checking accounts aren't a pit of snakes for 99% of the population. The entire economy can continue to rely on it just as it always has.
Does this mean that rich people have to be more careful managing gobs of cash? Yes, but that has always been the case. Treasury management is a thing that exists both as a thing people do professionally and as a service you can buy.
I understand that some people are young enough that they have either not heard about bank failures or did not feel like it applied to them due to being in a period that was very good for banks. But they are and they do: https://www.fdic.gov/bank/historical/bank/
You mean, personal savers and very small businesses can continue to rely on the banking system. That’s not 99% of the economy.
Young people hear plenty about bank failures - specifically as a success story for big government, a problem we solved, such that depositors are secure these days.
I recognize that startups are in a bit of a weird place where they might have a lot of money to manage before they are sophisticated enough to have a big finance team. If only there were some sort of entity specialized in dealing with their unique needs… oh wait.
Yes, that's why I said "99% of the population", not "99% of the economy".
But the economy's also going to be fine here. Most businesses with a lot of money understand that bank failure risk is just one of the many financial risks to manage. To the extent a startup wants to have millions of dollars but not hire somebody competent to manage that money, them's the breaks.
The same thing would be true for startups that don't take security seriously, for example. I feel bad for the founders here, but no worse than I would for one who experienced hackers getting in and stealing the data. Even if they had hired "sort of entity specialized in dealing with their" security needs. Picking a bad vendor happens, and if you bet your company on a vendor choice in a vital area, well, sometimes those bets don't come out like you hoped.
> Most businesses with a lot of money understand that bank failure risk is just one of the many financial risks to manage.
This is a poorer world than the one where it’s not, is my point.
What are you even supposed to do here, open accounts at 40 different banks when you get a $10 million check? That’s pointless silliness. Is this really what we want entrepreneurs to be spending their time on?
Oh no! A person with $10m in cash might have to put forth a little effort to take care of a vast amount of money! Such horrors have rarely been contemplated.
I understand that some see startup founders as delicate smol beans who are too uwu soft to have to actually do some work. But I have been told repeatedly that these people are genius future titans of industry, backed by the most financially savvy people on the planet. So I think maybe they can handle it?
If somebody is in the incredibly privileged position of being handed $10m in one go, but is also uninterested in managing the money, then I would expect them to hire a part-time CFO. Or at the very least to split the money up and put it into two different banks, which in this case would have resulted in no payroll disruption and the safety of 90-100% of their money.
I feel like you're conflating "a person" with businesses, who have a number of people downstream of their bank accounts. They really aren't very similar to wealthy individuals with large bank accounts.
Having said that, as I've been reading about this for the first time over the past couple days, I have become a bit less sympathetic to companies with very large deposits at a single bank. It does seem that there are mechanisms, like "insured cash sweep", that good financial officers should have been taking advantage of. But I still have uncertainty about this and want to read more about it.
But I think the general point of the other commenter in this thread is a good one: a company with, say $2M to $10M in cash deposits should ideally be able to access banking services easily and with negligible risk. This is not an enormous business size! It's better for society for it to be possible to run businesses like that without having to fear big surprises in the financial system killing you on a random Friday.
The "person" here is the founding CEO with a $10m check I was being asked to have empathy for. To the extent that we are instead talking about proper businesses, you have a point, but I have a different response. A real business that just keeps $10m in cash sitting around in one spot like some teen's first checking account is grossly lacking in treasury management.
> should ideally
Sure. Ideally, we should all live in the Big Rock Candy Mountains. [1] But back here in reality, companies have to manage all sorts of risks. If they don't want to hire a professional finance person and don't want to avail themselves of services that solve their problems, then that is a choice they can make. It's just not the taxpayer's job to kiss their boo-boos and make it all better when their gamble doesn't turn out so well.
It is totally possible to have an economy and public policy based on seething contempt for entrepreneurs. It's probably the case that a majority of voters would prefer to be a little worse off as long as the tech-bros they hate are a lot worse off. I just think this is an ugly, self-defeating basis on which to run a society.
>which in this case would have resulted in no payroll disruption and the safety of 90-100% of their money.
Why would it have resulted in that? We've already established that any amount above $250k in one bank may as as well be vaporized already, you just don't know it yet.
I am an entrepreneur from a family of entrepreneurs. I have started multiple companies, one of which was venture backed. I like entrepreneurs just fine, so peddle that nonsense elsewhere.
> Why would it have resulted in that?
Because our modern regulatory regime is pretty good.
If you have your money in two bank accounts and have reasonable capital reserves, you'll be able to make payroll from one of them. So the short-term problem is solved. In your example, you've got $5m to work with.
The expectations I'm seeing for that are on the order of 50%. So a week later, you're back up to $7.75 million to work with, with more to come in as assets are sold. Maybe you get everything back, maybe you take a haircut. The estimates I'm seeing are in the 0-20% range, so you end up with $9-10 million back over time.
And that's just the FDIC. Functioning businesses have income that they can use to pay salaries or as justification for loans or selling equity. They can also pursue acquisition by somebody who was lucky or smart enough not to have high egg/basket ratios.
So in the end, maybe we end up with a few failed companies, but it's not a systemic risk, and it's the sort of object lesson that helps people understand why they need to take cash management seriously beyond a certain level. That surely will suck for some people, but that's how capitalism works.
It is possible that it'll make some kind of realpolitik sense to stabilize the startup scene, but I sort of doubt it. During the housing crisis, the federal government bought up sufficient stock to stabilize American auto manufacturing not because they particularly cared about the jobs that would be lost or the ecosystem of supporting industries that would be damaged as a result of loss of major manufacturing, but because auto manufacturing is one of America's national security concerns... The factories and skill sets that create trucks can create APCs, jeeps, and tanks if a hot war breaks out.
I'm not exactly sure off the top of my head what the similar defense necessity story is for Silicon Valley.
Are you for real? There is an AI arms race with China, for one. There is critical innovation across all segments happening in Silicon Valley, including defense.
That would be a good argument for bailing out a Raytheon or a Microsoft, companies that have a record of success in delivering on complicated software technologies, but not the average Silicon Valley startup.
Framed another way, we're asking for the government to take some ownership of their stewardship of banks. The Treasury, the Fed, the CA gov, and the ratings agencies all gave svb passing grades. svb appears not to have done crypto speculation.
The svb ceo asked congress to weaken Dodd-Frank. If that's a bad idea, then congress should say no; that's their job.
Apparently banking over trivial amounts of money ($250k isn't even one month's cash use -- ie payroll and health insurance -- for a 15-ish person sfbay company) requiring significant work to make that cash unlikely to just disappear is no way to run a country.
The cash was always unlikely to disappear. It's just that even unlikely things happen sometimes.
If doing decent treasury management is too darned hard for rich people to do, I don't think that's a problem for the government to manage. Beyond the obvious expedient of using two or three banks, which would have solved most problems for most companies here, there are a number of obvious market-driven solutions. E.g., https://www.difxs.com/ or https://www.g2.com/categories/treasury-management
Yeah, this is some ideologically driven smearing of people who are literally like I want to stick my seed round in a checking account and not have that disappear. For what it's worth, I'm not rich; I'm like a hundred-thousandaire. (And not affected, though friends are.)
Disappointing to see someone like you gloating that a bank screwed a bunch of small business customers. From reading your writing, I doubt you'd cosign "basic economic services like a checking account are use at your own risk" in almost any other area.
Ah yes, my crazy ideology of "people should generally experience the consequences of their actions, especially when they're doing very well".
I get that you want to be able to be handed millions of dollars and have somebody else take care of that for you. Who doesn't want that? I just don't understand why you think it's the job of poorer people to subsidize you if you take a risk with those millions and it doesn't pan out.
> "basic economic services like a checking account are use at your own risk"
I in fact don't cosign that; I've been very clear that I support mandatory FDIC insurance with its current very generous limit. I also support the FDIC's resolution process where they immediately pay out the $250k and then work hard to quickly pay a large portion of the remainder. That's a giant level of risk reduction.
But if somebody is rich enough that they have millions in cash and haven't bothered to take basic precautions like "use two banks", I don't think that's a problem such that (much poorer) taxpayers should be obliged to make it all better. If it happened to a friend I would feel bad for them personally, of course. But not so much that I would be calling for a government bailout. Capitalism works because risks yield both gains and losses. People who don't like that should manage their risks.
Taxpayers are not on the hook for any deposit losses here. From the statement: “No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”
You know that not only startups use SVB right? Farmers and wineries do as well. And either way this is the economic engine of America - in its accounts lays the next trillions of dollars of GDP. It is unbelievably stupid to not find a way to make them whole for a black swan event.
Let's say a small farm or winery employees 20 employees and pays them an average of $50k a year. Holding three months of payroll alone will be over the FDIC limit, let alone other money they'll need to buffer all of their other expenses.
I have two good friends who own and run wineries in France. Both of them are relatively successful, but neither of them have anywhere near 20 employees, for the simple reason that they can't afford to. The majority of the work is done by family members.
It's hard to dredge up deep, deep wells of sympathy for folks who were already playing the salary game at double the value of half the players. One can't escape the sense that if they've done the kind of budgeting that a regular American does, they will be fine.