Aren't lots of us owners of SVB? I really don't get this "it's ok to wipe out the shareholders", i.e. all of us, "but it's not ok to wipe out the depositors" (e.g. Mark Cuban's 10M or so). Why should I lose money because of a run on this bank? If you're already bailing the bank out, oust the management, claw back what you can, but don't wipe out share holders or bond holders.
No, this is not how the deal works. We do not reimburse investors for wrong, or just plain unlucky investment decisions. Our financial-regulatory system treats banking and speculative investment differently, and this is by design.
> If you're already bailing the bank out, oust the management, claw back what you can, but don't wipe out share holders or bond holders.
You don’t get it: the bank is bailed out using funds of shareholders and bondholders. Taxpayers aren’t bailing out SVB, you are. If you don’t like it, well, I recommend selling your investments and keeping your money in regular savings accounts: the deal is, at the basic, very simple: if the company you own screwed up, your entire equity may be used to made those whom it screwed up whole, and you should be happy that your liability is limited to your equity only.
It's not clear whether the assets are enough to make the depositors whole. It sounds like the FDIC is making up the difference. Which it normally would not.
That's the bailout part. If the government is stepping in to bail people out via making up for any difference of uninsured deposits from FDIC funds then it's no longer a question of risk/being wrong/luck. The depositors were taking risk just as the shareholders were taking risk. If they didn't like it, well they could have kept the money in their mattresses.
I'm totally with you that everyone has to accept the risks they're taking. This is creating a distortion field here for certain types of risk taking.
Even if we ignore the bailout, I don't think the story is as simple as you put it. There was a run on the bank with VCs telling companies to withdraw their funds. From a stock market perspective this could be considered manipulation.
When I invest in a bank I'm also relying on the government's role as a regulator. If they failed in their role, or the government actions contributed to the failure of the bank, or they had other courses of action, why should I be on the hook for the consequences?
Maybe this course of action was necessary to stabilize the situation and protect against more bank runs. It still doesn't feel right. It feels like something we'll pay for in the future.
> It's not clear whether the assets are enough to make the depositors whole. It sounds like the FDIC is making up the difference. Which it normally would not.
Sure, which is why I’m not opposed to depositors taking some haircut. But that’s only more reason to wipe the shareholders to the last penny.
> The depositors were taking risk just as the shareholders were taking risk.
No, they were not, that’s the whole point. They took completely different kinds of risks. Irrespective to what degree the taxpayers are encumbered with extending the bail out loans, shareholders are the ones who are expected to foot any bill first and foremost.
