My answer: It is a bailout. And that's ok, if it was the best of bad options. Must we play the silly semantic game? By your explanation, all the bailouts during the '08 financial crisis also weren't bailouts. But they were.
I don’t like semantic games either. I always do my best to resolve a word to mean “the thing people care about when they use this word”. In the case of “bailout” it seems to me that what people care about is whether it will cost taxpayers.
In the case of SVB, it seems that their assets will cover their deposits, and FDIC has an insurance fund that gives them the liquid capital to cover deposits immediately while waiting for assets to sell. So no cost to taxpayers - not even in the form of “higher deposit insurance costs to banks being passed on to bank customers, who are taxpayers”.
(It’s possible to play semantic games until we formulate a picture that does show taxpayers will pay, e.g. “the FDIC’s deposit insurance fund is made up of payments made by banks, and banks would have passed on the cost of those payments to customers in the form of not offering as much interest on deposits as they otherwise would have offered, so the funds used to make the bridge are a bailout the taxpayer has already paid for”. Money is infinitely fungible, you can always tell a story where taxpayers paid the bill. But we said we weren’t going to play semantic games.)
The anger I’m familiar with surrounding bailouts has to do with the government stepping in to rescue banks that, in the eyes of the angered, were engaging in corrupt and risky/greedy practices. Whether the money came from taxpayers, or was truly magically free, this anger would remain.
Your definition of ballot is the one that is strange to me —- in attempting to avoid confusion, you would have created much confusion with me.
I don't think the second part is a semantic game at all. This switch to insure all deposits rather than just deposits up to a fairly low limit will definitely impose additional costs to the banking sector which will definitely be passed on to some degree or other. I agree this is certainly not a transfer of tax money to private institutions, and I applaud that, but I still think it is socializing a big chunk of additional risks of an industry where the rewards are large and private.
But more broadly I just don't think "bailout" is as narrow as just "costs taxpayers". This may be wrong, but I think of "bailout" as having its root in what you do to save a sinking ship. The widespread belief here is that there was a significant risk of an important ship - the banking sector - sinking, and government action has been taken to keep it from sinking. To me, we've bailed out that sinking ship. (And I'm glad we did!)
I guess it remains to be seen whether I'm the weirdo with a strange definition, or whether everyone will agree that this was a bailout, once it stops being a question with such immediacy.
I do see where your definition of a bailout is coming from, I don’t think it’s that weird. Perhaps the disconnect is that I’m assuming people would not hate a bailout that they actually genuinely really don’t pay anything for; they would press a button to bail out a sinking ship if it was really free to do so, even if the ship was sinking solely by incompetence on the part of the ship’s captain.
So the opposition to bailouts is actually “opposition to bailouts that cost taxpayers” plus an enormous dose of “we know you sneaky fuckers always lie about bailouts not costing taxpayers so we will assume all bailouts cost taxpayers”.
The disconnect comes from the question of whether there is actually a magical thing where government can provide insurance to private entities without it costing society anything. Of course that magic doesn't actually exist. Public subsidies always cost something.
I liked this definition of what a bailout is, which meshes with mine but puts it in better words, via Dan Davies on today's Odd Lots podcast:
> "When the state steps in and provides insurance so that something economically destructive doesn't happen."
Yeah, like I said, this is the disconnect. Assume for a moment that magic does exist. Maybe aliens come to Earth and hands the government a stack of gold from outside the solar system worth exactly that much, which the government uses to pay for the bank’s issues and nothing else, and then the aliens leave promising to never return. If that happens, it didn’t cost taxpayers anything, so it can’t be called a bailout, since bailouts necessarily cost the taxpayers. Except in another sense it is obviously a bailout, the aliens literally flew in from outer space and bailed out the bank and the government.
So a bank bailout is when an outside party pays to solve the issue, and a bailout is also when taxpayers foot the bill. If taxpayers do not foot the bill for SVB in any appreciable way, is it a bailout?
> I liked this definition of what a bailout is, which meshes with mine but puts it in better words, via Dan Davies on today's Odd Lots podcast:
> "When the state steps in and provides insurance so that something economically destructive doesn't happen."
So the FDIC existing is a bailout to start with, so arguing over whether SVB should get a bailout isn’t about the systemic risk exception being invoked at all, but about the existence of public deposit insurance in any form?
This is a definition of bailout that seems to have been conveniently invented within the last 18 hours. Does it really not set your "I wonder if I'm rationalizing" alarm bells off when you find yourself writing out this weirdly very specifically narrow definition?
It's just simpler and more honest to recognize it was a bailout, and one that you support (as do I).
I think Matthew Klein put this pretty well on Twitter[0]:
> "We aren't using taxpayer money to do a bailout, we are just using the ESF and also having the Fed pretend that banks haven't lost money on their bond portfolios and we are going to charge depositors at banks that didn't fail to make depositors whole at banks that did"
I'm being perfectly simple and honest, here is the a legal definition of 'bailout', which is closest to the context we're all using:
"A bailout is when the government gives financial support to rescue a company that is in financial trouble and possibly at risk for bankruptcy. The bailout enables the survival of the company." [1]
The government is not giving financial support to rescue SVB. SVB's dead. The government is not giving money to depositors. The money comes from the bank's assets. Current estimates are showing that assets will cover over 100% of deposits. Let's say that SVB's assets don't cover 100%. In that case, the government is still not bailing out depositors. The banks themselves will pay through a special assessment. In 2009, that was about 5 basis points of deposits. 5 cents on $100 seems like a pretty good deal, all things considered.
I included the entire text of something someone wrote, along with a source of where it was written. Twitter has nothing to do with it, besides being the source of the text.
I didn't know about that legal definition, that's interesting! I would argue that it is not "the definition" of a word that is used a lot colloquially outside of legal cases, but I definitely appreciate being made aware that such a definition exists!
In any case, I think that definition clearly applies to all of the other banks that many believe may well have gone under today, were it not for the bailout.
Says who to which part? The part about where the money is coming from (other banks) is just factual; it's the structure of the rescue action.
If you mean the question of whether that will be passed on to the depositors at those other banks is not based on a factual thing you can point to, but it's just what happens, it's how businesses work; you can't charge them money without expecting some kind of pass-through to their customers.
We are talking about a single assessment of 5 basis points of deposits, which is what was assessed in 2009 after the 2008 crisis. This is unlikely to be a major cost for banks.
I dunno, it seems like a pretty sizable assessment as is. But this also isn't the end of this. There will be an expansion of banking regulations to cover smaller banks, which will incur costs, and they'll have to increase depository insurance premiums a lot to insure all deposits rather than just the first $250k.
