I'm as pessimistic as anyone else about the Great Recession and our government's response to it, the lack of bankers ending up in jail, no big bank break ups and all that.
However, were WF to make a series of bad business decisions and end up in dire straights, can we really confidently say they'll get bailed out yet again? I want to think that a single bank screwing themselves up would face a markedly different response than the global economy melting down.
I think we should let them fail. Not that my opinion matters. Liquidate the business and make sure anyone with savings is made whole, but investors need to take on the losses, that's how it's supposed to work. Yes, I understand that "investors" includes my retirement account, but that's fine. Then maybe we'd see some appropriate consequences for the people in charge. Maybe. Something dramatic needs to happen to shake up the industry, and letting a supermassive bank fail is probably that.
The given reason for the bail outs was systematic risk to the entire banking sector because they were all exposed to the same risks and those risks were more correlated than people believed.
In the case of a big bank making a series of small bad bets it would not really affect others like in this case. Other banks don't care about this product failing. What, IMO, is more likely that just their profitability will suffer till they start making better decisions again and if WF persists with the bad decisions the valuable parts will be acquired.
Actually, we didn't. It failed and collapsed. What makes you think it was bailed out?
To add detail: SVB was a subsidiary of SVB Financial Group, a holding company that owned the bank as well as some other things. SVB still exists, but is no longer a subsidiary of that holding company. It was completely taken over by the FDIC so they could make depositors whole. The former owners lost their biggest business, had to liquidate the rest of their businesses, and filed for bankruptcy a week later. They did not get bailed out.
The thing is, they were not exactly behaving badly. Their big mistake was over-investing in "safe" long-term government bonds. These assets are traditionally considered very low-risk, but rapidly rising interest rates made them lose book value, and some stakeholders got a bit jittery. Then SVB's leadership held a disastrous conference call where they basically said "everything will be fine, as long as there is no bank run", which pretty much instantly kicked off a bank run on ~80% of all their deposits. Even the best-managed banks could not withstand that kind of bank run. SVB basically got unlucky. They were not horribly mismanaged like everybody seems to assume.
That’s fair. I meant to say the customers were all made whole well above and beyond the FDIC limit.
I think that’s a good thing. I’m unconvinced the same wouldn’t happen at WF.
[edit] You edited your comment with a significantly larger amount of preamble, so I’m adding: I agree, and I am very well read on SVB. They were simply unlucky, and perhaps made a bad choice in overinvesting in illiquid bonds, plus bad VC behavior leading to the bank run. None of that was my point.
However, were WF to make a series of bad business decisions and end up in dire straights, can we really confidently say they'll get bailed out yet again? I want to think that a single bank screwing themselves up would face a markedly different response than the global economy melting down.