Shareholders lost all the money they spent on capital. That’s a lot. Exec employ...

mlyle · on March 13, 2023

Imagine this scenario:

You invest $1.

Other people deposit $50.

You take $51 to a Las Vegas roulette table and bet it all on black.

50-50 chance there's $102 afterwards and shareholders and employees get to share most of the $51 gain; 50-50 chance there's $0.

Taking outsized risks with other peoples' money is a great gig for both stockholders and executives. We normally prohibit financial services firm from engaging in this kind of behavior, because the economic incentives favor outsized risk.

rvnx · on March 13, 2023

But wait, I see that SVB was paying 4.50% of interest per year to depositors (cf. https://www.svb.com/account/y-combinator )

Even if depositors lose 5%. 5% that they shouldn't have earned because of the ultra high-risk position taken, maybe it's from them it should be taken...

khuey · on March 13, 2023

A "money market" account means the money is invested in extremely short term government or corporate bonds. SVB probably wasn't paying that 4.5%, they were just passing through what the market is paying for money market funds right now.