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naraburns  nihil supernum  1yr ago (text post)   34750 thread views

Culture War Roundup for the week of March 13, 2023

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I'm going to use this text, posted in last week's thread, as a jumping off point to make a little effortpost on a boring area that's actually kind of important, and where I know a little bit: treasury management!

If the FDIC or other banking entity does not cover deposits, any business that depends on SVB and has a

$125K bimonthly payroll will have to do furloughs or layoffs. That's basically any business above ~15-20 people.

... From a survey of my VC and startup friends, it seems reasonable to assume that 25% of that are extremely dependent on SVB (e.g. payroll, no cash sitting elsewhere, and incoming customer payments aren't going to cover anything).

This will only happen if your CFO is incompetent and doesn't do treasury management.

Treasury management - the most basic practice of any corporate finance department - is the practice of managing corporate cash in order to earn interest on what isn't being used , ensure that whatever cash is needed by the business is available, and also minimize tail risks like your bank going belly up.

Step 1 is observing that you can get 4.5% on 4 week treasuries. These are, regardless of amount, backed by full faith and credit of US Gov.

Now suppose you are a business with $500k of biweekly expenses ($500k due on Mar 15, $500k due on Mar 31). You have $20M in venture capital remaining which gives you about 1 year 8 months of runway.

All of that - minus $500k or so needed for short term investments - goes into 4-8 week treasuries which you reinvest whenever they mature. This earns 4.5% or about $900k/year in essentially free money. Money sitting in government bonds with duration < 90 days is called cash equivalent by corporate finance people.

Your not incompetent CFO just extended your runway to 1 year 9 months.

Step 2: ensure that the maturity dates of these cash equivalents line up to your payroll dates. $500k cash is due on Mar 15 for payroll/etc. Fortunately, $500k worth of your 4 week treasuries got turned into cash on Mar 9 (typically the maturity date is thurs).

Another $500k cash is due on Mar 31. You have another $500k worth of 4 week treasuries maturing into your bank account on Mar 30 (a thurs) or maybe Mar 23 (also a thurs) if you really want to be safe.

Step 3: line up a short term credit facility.

Some expenses are less predictable. Part of the job of CFO is to project these expenses, come up with upper bounds, and inform the CEO what it will cost if these bounds are exceeded. Then the CFO goes to a few banks and lines up credit facilities - a $2-3M line of short term credit backed by cash equivalents from step 2.

Step 4: have a few bank accounts including one at a "too big to fail".

That's treasury management, obviously oversimplified.

Now suppose your CFO actually did his job. It's Mar 13 and SVB just imploded. You had $500k sitting in SVB for Mar 15 payroll and that's locked up. Here's what you do:

Mar 11: Quickly call up your credit facility and tell them to wire $500k to your payroll provider on Mon. Call your payroll provider and tell them to confirm with the bank that this is happening to avoid any snafus.

Mar 13-14: As soon as SVB allows it, wire the $250k FDIC insured money to your credit facility. Also redirect treasury maturity payments to said account, and take another $250-270k of cash equivalent and don't reinvest them.

Mar 16 or Mar 23 (a thursday when your maturity payment gets deposited): get $270k worth of 4 week treasury maturity payments from the US govt. Wire this money back to your credit facility.

Net result is that you make payroll with no interruption. You just lost $250k to SVB's errors and paid your credit facility $20k in interest. The end.

your CFO

My impression from reading Hacker News comments this past weekend is that even having a CFO is an unfair expectation to levy against a fledgling startup.

I'm kind of wondering what value add VC's provide if not giving founders advice on basic skills like this.

The value add is having lots of money and picking which projects they go to. I'm sure the good VCs also provide lots of useful advice but their main economic role is money man.

Tech world is really coming off as a bunch of little over paid children right now.

Because a massive bank lied to them and because incompetent federal regulators didn’t catch it?

Should they just have already assumed the government was made up mostly of completely useless rent seeking tyrants? Keep in mind a lot of them are pretty young and may not have figured that out yet.

Should they just have already assumed the government was made up mostly of completely useless rent seeking tyrants? Keep in mind a lot of them are pretty young and may not have figured that out yet.

I'd argue being young is even more reason for them to know. My wife's boomer parents are still living on in the shadow of their upbringing, where they assume the institutions (at least the ones run by Democrats) are unquestionably good, honorable, trustworthy and competent. The continuous rolling systemic weaknesses and disasters of the last 20 years have done absolutely zero to disabuse them of that notion. Where as, I've seen numerous polls that show young people who've grown up knowing nothing but the the absolute clusterfuck of the last 20 years have record low levels of trust in institutions.

All that said, I found this data point which makes me question a lot of that, and maybe come around to your side.

https://www.statista.com/statistics/1078192/trust-government-generation-us/

Some of the data points are funny. Like in 2009 after Obama won the presidency, Millennials had a 43% trust in government. That doesn't last. Biden being elected in 2020 results in a fairly large bump in trust for every generation except Millennials. Weirdly enough the data skips straight from Oct 2015 to April 2017, so we don't get a snapshot of the post Trump trust score.

So I donno, looking over the data, it may be hard to tease apart age cohort from political party in power, with younger cohorts generally trusting D's more, and older cohorts seeming to trust R's more. With the seemingly notable exception of Biden. In fact, when I really look at Millennials on the last 20 years of the graph, they do seem abnormally trusting. Once again, with the giant glaring exception of Biden winning office. What's up with that?

I’m late GenX, and I took “government” class in high school. I’ve heard Boomers talk about “civics” class, but my cohort and younger talk about “social studies” classes. Not a comprehensive answer, just an anecdote which might be a piece of the puzzle.

Back in my day we had “social studies” in elementary/middle and “government” in high school. The former was state and national history. Looks like the current requirements have a “social studies” category including history, government, geography and sometimes economics.

I think it’s a catchall term, not a shibboleth.

Millennial here (or at least definitely somewhere between GenX and Zoomer), we indeed had Social Studies (mostly history, maybe also literature) when I was in public school. When I transferred to a charter school, I had more specific history classes. Didn't exactly have civics.

Things started notably unraveling under fairly recently and Biden took the blame.

The bank didn't lie to them, they published their 10-K (with a full balance sheet on page 95) that clearly showed unrealized losses on their HFM portfolio of $15 billion that nearly exceeded their owners equity of $16.295 billion showing they were nearly insolvent using market prices on Dec 31, or if they were ever forced to sell. Maybe my expectations are too high but if I had more than a million dollars in uninsured assets in a bank I'd be arsed to read through their annual report and be able to do arithmetic.

The issue here isn't the government. It's running a business with $millions in cash but not having a person familiar with basic corporate finance to help them manage it, as well as not spending a bit of time on investopedia to learn it themselves.

Banks fail. The government has rules in place as to what happens when they do, they require banks to disclose these rules (e.g. FDIC insured up to $250k) and these rules are enforced. Is it your belief that SVB stopped disclosing FDIC insurance limits? SVB is only minimally a story of government being useless/corrupt - at least, it wasn't a story about govt corruption until Yellen/Biden decided to take money from workers and give it (indirectly) to wealthy venture capitalists.

it wasn't a story about govt corruption until Yellen/Biden decided to take money from workers and give it (indirectly) to wealthy venture capitalists.

The money to make depositors (who are mostly employers, not VCs) whole is coming from a fund paid into by banks, not taxpayers.

My mistake on whether the funds will be taken from workers or people who deposit money in banks that engage in prudent risk management.

But I guess going forward, there's no point bothering to put your deposits into the reliable banks.

The money to make depositors (who are mostly employers, not VCs)

Who owns these depositors, and has been furiously lobbying the government to protect their asset over the weekend?

That’s basically the same thing as taxpayers. People who didn’t invest in shit bank have to pay for shit bank.

And the correlation between pays a lot in taxes and has a lot of deposits is likely quite high.

I mean really, is a safe full of one pay-period worth of physical cash too much to ask? Is this how financially illiterate we have become?

These motherfuckers need to eat shit. CFOs won’t get it until they see Roku employees setting up GoFundMe’s for lunch money.

I mean really, is a safe full of one pay-period worth of physical cash too much to ask?

Yes.

In this scenario is HQ going to mail me an envelope stuffed with cash or do I have to fly to San Francisco and pick it up?

George Bailey will be waiting for you in the Bay Area asking if you can hold out a bit

Money orders only, sorry.

There was a woman at my grandmother’s retirement home who’d worked in a Saudi hospital in the 80s or 90s. She oversaw their payroll switch from carrying in a literal sack of money to the exotic technology of checks. People weren’t used to working with them, but they were a way more efficient solution than handing out cash.

Judging by the response to SBF, there are lots of pundits who would likely bite that bullet.

The tech world is millions of people in the US alone and not entirely in silicone Valley.

A brand new company consisting of 10 tech workers lacks a mature corporate structure and a full C suite. I don't know what else we expect.

Acting like adults. We are talking about Stanford types probably one older mba.

But also referring to all the VC crying on twitter.

So I’m starting to just assume there’s zero reason for regional banks to exists. They don’t have proprietary advantages like the big banks. GS with complexity/cap markets, C with scale ability to do transactions anywhere etc.

I don’t see any reason for a person to keep deposits in no edge regional banks. They pay you barely anything. Seems like on the lending side they don’t have any market advantage to generate enough yield. Business models seem dependent on 0% deposits which no one should own.

Depending on deposits just seems like a bad business model to me going forward. And 0% deposits allowing you to make bad financial decisions.

The market seems to agree with you

Regional banks do have proprietary advantage - domain specific knowledge of regional industry and real estate as well as local relationships. JPM or BofA need to have fairly uniform underwriting rules and these rules will not necessarily allow them to service some particular industry with weird cash flow patterns (such as startups). Rapidly scaling SAAS is a very good example of this.

Another great service SVB provided is a degree of self dealing/moral hazard - founders can get a mortgage backed by illiquid equity if they do corporate banking with SVB. This sort of self dealing is a problem for startups, but it is not really a problem and is a useful feature for family offices.

But how is that translating into good risks adjusted returns? They bought treasuries for size.

And the other business seems like a we give you good terms on loans so you deposit them with us. And then invest ??? For returns others can’t get. That all works if you can (1) get higher returns from relationships (2) have some real business diversification so your not overly exposed to one risks. Neither of these things seem true.

But the larger issue a deposit based bank which regionals seem to be heavily dependent on can’t function in this new world. Deposits move too fast. The whole business model seemed based on cheap loans (no edge here) to get deposits (no value anymore).

As a small business owner I couldn't imagine trying to deal with a bank like Citi or BoA. The general rule of thumb is that you want a bank big enough to offer the kind of products you need but no bigger. I use a regional (though I could probably use a small local) and if I have a problem I can call the girl who handles my account from the number in my Rolodex and usually get an in-person meeting scheduled for the same day. IF I'm dealing with some huge national I'm stuck calling a customer service line where I spend half the afternoon on hold and the other half trying to explain my problem to someone who has limited power to solve it and whose evaluations are based on how quickly they can get me to hang up.

Yeah, I'm only exposed to the small business's accountant's side of dealing with the banks when there's tech issues, but there's absolutely practical day-to-day benefits of smaller banks.

Judging by how we prioritized fixing post-cutover bugs at the bank I worked for, the best bank is the one where your CFO can call their CEO at 6am (time zones!) and start the conversation with "What the flying fuck?"

So I’m starting to just assume there’s zero reason for regional banks to exists.

This whole affair has actually convinced me of the exact opposite - there's no reason for gigantic banks which can cause the entire economy and unrelated businesses to go under/suffer when placed under stress. There shouldn't be any banks which are systemically important and require bailouts in order to prevent the collapse of the entire economy. Beyond the incredible fragility induced by having corrupt financial institutions with broken incentives (note the people actually profiting off these issues and selling stock in SVB before the news broke), the sheer concentration of wealth and power that occurs in those banks gives them far more influence over the levers of national power than is healthy for society.

So then why have GSIBs losts. They have higher capital ratios. They’ve lost every regulatory fight for a decade. The shit SVB did would never be allowed at the mega banks.

Being that SVB was deemed systematic and got a full bailout it’s obvious banks like them were benefiting from easier regulations while still being systematic.

I guess the solution is the regionals are treated like the GSIBs. So they need to raise their tier one capital about 50-80% right now to fit the same standards as the GSIBs. And we just drop the asset cap down to 10 billion for regulatory reasons since these guys are claiming their depositors need protected.

GSIB

Could you please explain this acronym?

Global systematically-important bank.

“Too big to fail” (without bringing down everything else too)

I'm sorry but could you please reword your comment? I have no idea how to parse the sentence "So then why have GSIBs losts." and the grammar errors elsewhere leave me unwilling to talk in depth on a technical subject.

@sliders1234 appears to be arguing: if GSIBs are so powerful, we should expect them to have less regulation. Mid-sized banks like SVB are dodging regulations which (hopefully!) apply to full-size ones, but are still getting the benefits of bailouts. If we are giving them the benefits they should also be paying the costs.

I don’t know what the bit about “asset cap” means.

$250 billion in assets was trigger for tighter regs.

Yeah, seems like SVB's core competency was supposed to be "we do your treasury management for you for a fraction of the cost of a CFO" (they were paying treasury like rates on corporate money market accounts). Unfortunately, they were incompetent (they had long dated treasuries/agencies and no hedges).

Money market accounts != treasury management.

However, robo-treasury management (taking 10bps off the top and automating some projections) might well be a useful niche and I should investigate if it exists.

Something like that exists. Raymond James gives you $50 million fdic. They do this by taking your account and putting it in 200 banks.

It was hard for me to wrap my head around this, until I got it into my noggin that all the alarm about start-ups really is about start-ups. This was the start-up bank. So you had someone who decided that "Internet of Things for your parrot" was a great idea, they pitched it, some VC threw money at them, they put that into SVB and relied on it for everything. They weren't generating any profit yet, so any customer payments or subscriptions were in effect meaningless. They were running the business on cash injections from their backers. And when SVB went "poof!" all the money is now frozen there, there isn't any money coming in otherwise, so they literally can't pay wages etc. and may have to go bust.

And the problem from SVB's side seems to be: loads of money coming in as deposits. Can't lend this out and make money off it (because this is a start-up bank, nobody is in a position to borrow money, they're living off their fairy godmothers) so they bought some kind of bonds? (unclear on this because I'm ignorant) which, because of interest rate hikes, now became unprofitable. Somebody got panicky, started drawing money out, and that started a bank run, and here we are. More or less, this is how I understand it, could be totally wrong.

Pretty much you hit the major points. Of course the whole point of being a niche bank is that you can charge higher service fees. And being a niche bank means that you can't hedge the risk completely of all your customers going down at once - so you really need high liquidity investment portfolio.

Thanks for the writeup, I at least found this interesting. Don't get much exposure to finance.

All of that - minus $500k or so needed for short term investments - goes into 4-8 week treasuries which you reinvest whenever they mature. This earns 4.5% or about $900k/year in essentially free money. Money sitting in government bonds with duration < 90 days is called cash equivalent by corporate finance people.

Is this a function of the current ahistorically (at least in my lifetime...) high interest rates? Were people still buying 4 week T-bills even when interest rates were shit, or in 'normal times' are there better short-term investments?

People were buying a mix of 4 week t-bills and other short term debt in order to put their money to work. It was not always paying 4.5% interest though, a while back it was maybe 0.1-0.2% + protection against tail risks of your bank shutting down.

Not sure about details but I logged in to work this morning and saw an announcement from our hopefully-not-incompetent CFO that this was basically what we are doing. Yay, I keep getting paid until the world financial system collapses. (which may be tomorrow, alas)

There are services that help automate treasury management for smaller companies now, like Vesto.

Until last year T-Bills were paying ~nothing, and it had been that way since 2008, an eternity in the startup world. There was no direct financial incentive to do anything more complicated than park your money in a checking account. Sure, ideally everyone should have been actively managing things to hedge against bank failure, but startups have a zillion things to worry about. SVB's pitch was basically that they were experts on startup finance and would relieve you of having to worry about this yourself. The social proof of these claims was impeccable.

So, yes, many startups screwed up. It turns out that safeguarding $20M isn't entirely trivial. But it's a very predictable sort of screwup. There wasn't really anyone within their world telling them this, it wasn't part of the culture, nobody knew anyone who had been burned by it.

And, well, maybe it should be trivial to safeguard $20M? "You have to actively manage your money or there's a small chance it might disappear" is actually a pretty undesirable property for a banking system to have. The fact that it's true in the first place is a consequence of an interlocking set of government policies — the Fed doesn't allow "narrow banks" (banks that just hold your money in their Fed master accounts rather than doing anything complicated with it) and offers no central bank digital currency (so the only way to hold cash that's a direct liability of the government is to hold actual physical bills). Meanwhile the FDIC only guarantees coverage of up to $250K, a trivial amount by the standards of a business.

The net result of these policies is that the government is effectively saying "If you want to hold dollars in a practical liquid form you have to hold them in a commercial bank. We require that bank to engage in activities that carry some level of risk. We'll try to regulate that bank to make sure it doesn't blow up, but if we fail, that's your problem."

"WTF?" is a reasonable response to this state of affairs. If these companies had had the option to put their money into a narrow bank or hold it as a direct liability of the government, but had nonetheless chosen to trust it to a private bank because they were chasing higher returns, I'd have zero sympathy for them. But our system declines to make those safer options available.

How do you allow a narrow bank without collapsing the entire banking system? Once you can put your cash in a place that has no risks aside from actual fraud and sovereign default, why would you put it anywhere else? And if you won't put it anywhere else, how do private loans get made? This is made worse by the fact that a narrow bank today would pay more than savings, but even if a narrow bank paid zero, the fact that the risk was literally as close to zero as possible would likely result in most commercial bank deposits vanishing, and then who would make loans?

Wouldn't banks just increase their interest rate to attract depositors? It's self correcting: some people would choose the least risky option, their money would no longer be available for risky investments, and so the remaining people with less risk aversion would get greater returns.

I think risk aversion is strong enough that the banks would not be able to increase their interest rates sufficiently while still loaning money profitably. That is, fractional reserve banking (and thus the whole financial system) is based on fooling people into taking more risk than they'd like.

I'd imagine the banks that make money off your deposits would actually have to give you a cut of the pie as enticement. And really, why shouldn't they?

In theory. But in practice the federal government bails out “risky banks” so question is whether there is much juice to be squeezed.

Once you can put your cash in a place that has no risks aside from actual fraud and sovereign default, why would you put it anywhere else?

Even a small yield on things like private loans would be worth it for larger sums. I'm sure that there's a certain subset of business that would take 0% yield for 0% risk, but I don't think that's everyone.

Commercial banks could offer higher interest rates on deposits, lend out their own capital, or issue bonds. If this didn't provide sufficient funding for whatever amount of lending the government wanted to see, the government itself could loan money to banks to re-lend.

Really though, the easiest patch to the system would just be for FDIC insurance to (officially) cover unlimited balances, or at least scale high enough that only the largest organizations had to worry about it. It makes no sense to require millions of entities (if you include individuals of moderate net worth) to constantly juggle funds to guard against a very small chance of a catastrophic outcome that most of them aren't well positioned to evaluate the probability of. That's exactly the sort of risk insurance is for.

If the concern is that this will create moral hazard because banks that take more risks will be able to pay higher interest rates and fully-insured depositors will have no reason to avoid them, the solution is just for regulators to limit depository institutions to only taking on risks the government is comfortable insuring against. Individuals should be allowed to take on risk to chase returns, but there's no compelling reason to offer this sort of exposure through deposit accounts in particular. Doing so runs contrary to the way most people mentally model them or wish to use them.

Why not require banks to buy insurance instead of government regulation? Get market pricing on risks instead of government fiat?

Who are you going to buy global financial collapse insurance from? What counterparty can be relied on to pay out in such a scenario?

In the case of global financial collapse the dollar is probably worthless so who cares?

Who are you going to buy global financial collapse insurance from? What counterparty can be relied on to pay out in such a scenario?

You gotta have physical. Physical gold, yes. But also physical land you can reach, physical guns, and a physical body of followers you can trust.

Why not require banks to buy insurance instead of government regulation?

Forcing banks to buy insurance still is government regulation.

Yes it is. I should’ve made it clear. One is command and control (ie you must do XYZ). Think old school environmental regulation. The second is more like a carbon tax. It regulates via pricing arguably allowing a more accurate risk.

Insurance is a key if not the main function of the US government and many other governments. They can print money. There’s no insurance company big enough to insure. SVB. Maybe a consortium could also insure a little. But the insurance industry is not bigger than the banking industry. They couldn’t insure a bank issue that is systematic with multiple failing. You would move the stystematic risks for bank failure to banks failure causing insurance failure. AIG had a quant insurance unit that insured some financial risks and surprise surprise they sold it too cheap and blew up.

This results in a fully socialized lending system with the government making all the decisions. Which is likely where we're headed ANYWAY, I'll grant, but it seems like a bad end.

Once you can put your cash in a place that has no risks aside from actual fraud and sovereign default, why would you put it anywhere else?

In ye olden times also known as "the late 80s", it was common (at least in Northern Europe) for bank accounts to pay actual interest, particularly for fixed term deposits. This would be that same thing expect instead of a fixed term, the depositer would be taking some minor risk in exhange for return on their deposit. Fully guaranteed accounts might in turn pay no or even a small negative interest (eg. you have to pay an annual fee for the bank to safeguard your money).

Since when have banks been banned from owning Tbills? They can 100% hold safe cash like instruments that can be liquidated quickly.

The phrase "Narrow Bank" is the name of an actual bank that the Fed shut down because it did not lend out money and just held 100% safe reserves.

https://archive.is/TqCJX

The issue there is more that the Fed pays interest on excess reserves and that bank was just trying to abuse that system. The fact they could abuse it shows how much of an abomination the whole reserves system has become; but, I don't think an actual 100% reserves bank that just held required reserves at the Fed and kept the rest in T-bills or money in its own vaults would get in trouble.

No, the explicit reasoning of the fed in blocking TNB is that it would discourage people from putting money into institutions that lend.

That is not at all my interpretation of the Fed's statement. I read it as more in line with my interpretation. They explicitly state many times in their statement that the issue is over what institutions should receive interest on reserves. If The Narrow Bank did not receive interest on reserves the Fed wouldn't care IMO. The article in the archive link above also explicitly makes note that The Narrow Bank was trying to do arbitrage on the Fed's policy of paying interest on reserves. I think you are just mistaken.

Nah it really must be more ideological, or something else like that. To the extent any journalist or economist was speculating that the Fed wants to avoid paying interest on excess reserves, they would be flatly incorrect. Central bank reserves are a closed system, so to the extent that a narrow bank is attracting them, that's just a flow from other banks where they were beforehand. The central bank is paying the same interest out either way. Other non-depository institutions (who aren't eligible for IOR) using reverse-repos to get (nearly) the base interest rate is just a workaround to help smooth out the system (ineligible because of congressional rules; the central bank would almost certainly prefer to pay it out in as simple a fashion as possible).

And the central bank is not trying to avoid paying out interest -- it's a policy choice in the first place to pay IOR (that's the whole rate maintenance regime now: instead of using open-market-operations to maintain a positive interest rate, they simply flood the system with excess reserves and pay interest on them directly, which is way simpler). It sounds like the Fed had been narrowing the gap between ceiling and floor rates anyway, because they never were using that lower rate to try to really save money or whatever.

To be explicit, the Fed Reverse's refusal (and later notice of rulemaking) was about The Narrow Bank (and other) being able to access the interest on excess reserve rate accounts (possibly only at full rate? I can't find the final rule, if there ever was one). The Narrow Bank was chartered in Connecticut and still has a cert good til August of 2023, though I think their specific business model is focused very heavily on those rates and thus they haven't opened for accounts yet.

((I expect groups like the Narrow Bank and Custodia are probably more about the philosophical point, anyway.))

They could have put their money in larger more diversified bank subject to more regulations including liquidity stress tests that SVB successfully lobbied to be exempted from. The VC world and their startups weren't seeking maximum safety and unfairly barred from seeking it. They sought out a smaller bank with less regulatory oversight that specialized in their industry presumably because that offered benefits.

Would those stress tests actually detect any issues, or would SVB have been fine either way, with or without the changes they lobbied for? Has anyone actually checked that, or is this just an empty pro-government regulation talking point?

I am not an expert on how the Dodd Frank Act Stress Test is conducted and I don't know whether it would have caught this. Forbes says that "will we get fucked if the fed raises rates" is a basic scenario they should have been testing for and that they were exempt from disclosing whether they had enough high quality liquid assets to cover 30 days of distressed cash flow. I don't know whether the standard definition of distressed cash flow includes this sort of bank run. I suspect someone who is an expert on all this will do a big analysis in the next week or so.

I'm suggesting that the VC & startups were not maximally risk averse in their banking selection. Even if you think regulation adds no security, "hey let's put all our money in a bank specializing in one industry" seems obviously more risky than "let's deposit in a massive diversified bank like BoA. The idea that because The Narrow Bank was shut down they had no safer option than SVB doesn't make much sense to me.

https://www.google.com/amp/s/www.forbes.com/sites/mayrarodriguezvalladares/2023/03/11/warning-signals-about-silicon-valley-bank-were-all-around-us/amp/

The burden of proof is on people calling for regulation and complaining about SVB lobbying to actually show that the stress tests they were allegedly exempt of would actually have prevented the situation. Otherwise, this is just pure partisanship without any substance: if you claim the problem here is lack of regulation and stress test, you better show that what you propose is more than empty quasi-religious ritual to appease the regulation gods, and that it would actually causally achieve substantial outcome.

+1

Elizabeth Warren sent up her offering the regulations Gods in this morning's NYT.

Which also means she had her staff write the op-ed over the weekend. What a great boss.

Greg Mankiw says that the stress tests probably wouldn't have caught this, although I imagine that they'll be modified to cover this scenario in the future.

The quality contributions roundup has a lot of discussion of fertility. I found it pretty disconcerting to read, since it all seemed to assume that the only way to get women to have kids is to enforce a top down dystopia. This is not my personal experience in my social surroundings★, but of course I live in Israel so I don't count‡.

Anyway, here is my follow-up question:

If you had the ability to set policies that will encourage increased fertility, what policies would you be implement across the board for both men and women simultaneously?

In other words, not "women can't be allowed access to higher education until they've had at least two children", but "people of child-bearing age can't be allowed access to higher education until they've had at least two children". Or "new parents of children are given twenty additional paid vacation days", or whatever. Are there any such policies you think could actually be effective?

★ if anything what I see is women regretting not being able to have more kids

‡ In Israel, fwiw, having kids is simply by default assumed to be a shared responsibility of men, women, and society. It is expected that men take (government paid) sick days to stay home with sick kids. It is not blinked at for the manager to show up to a meeting remotely with a sick kid in his lap. It is expected that men will leave work early several times a week to pick up kids from school — at least in all the places in Israel I have lived I have seen reasonably close sex splits of the parents at pickup/dropoff. I am not clear on whether or not this is equally the case in America — I don't get that impression, but as my knowledge of America is limited to TV and internet discussions, I could be wrong. But I see fathers at the park supervising their kids all the time, and the internet discourse re America is about men getting assumed to be pedophiles for being around kids... So I assume there must be some difference...

In my very limited experience, the one difficulty of having kids is limited grandparent help. Granted, we live somewhat far from grandparents (eg 3 hours). This was very different from when I grew up when (1) I spent significant time with my maternal grandparents but of course we lived (2) five minutes from them.

I'm libertarian adjacent in my views so top down policy is something I always have some trouble endorsing. The suggestion from recent threads that I found most compelling was doing things to nudge up the status of parents and down the status of single people somewhat and double income no kid(dinks) significantly. Less twenty something singles dramas, more happy family sitcoms. Anywhere we're giving people bonuses or better deals for being a veteran we should also be giving better deals and bonuses for being a parent. Make them stack! Make every dude in media who just sleeps with women and doesn't commit look like a shifty sleezbag instead of Neil Patrick Harris. Less scare stories of getting knocked up at 18 and being a single mother with no prospects and more scare stories of having a 35th birthday party that no one shows up to because your friends no longer relate to you because you never had kids.

As far as actual top down policy end all public funding that might somehow find its way into propping up and college department devoted to grievance studies of any kind.

I actually agree with this, from a somewhat different perspective, which is that I find it so deeply weird how blue Americans react to larger families as an exotic and bizarre species. Meanwhile, at least on Facebook, I see loads of blue tribe women wishing they could have another baby but feeling like it's too socially unacceptable or having no mental model for how it would work logistically. This seems very fixable: Start a concerted propaganda campaign making 3-4 kids the "normal" family size and < 3 kind of sad and pathetic and weird, and given how much human nature seems to anyway want >2 kids I bet you could get somewhere with it.

(No bets for Europe, where having kids at all has tanked. But once you've had one baby they tend to be contagious, and Blue America still really wants babies...)

But this is circular - a 'status nudge' requires either 'everyone' or 'the high-status people' to think having kids is very good and promote it, and convincing them is just the original problem, again. The combination of contingency, individual action, the many dramatic changes in modern society, and whatever else that led to both tastemakers/the media/other influential people not supporting having many children is the problem then, and 'they should promote having more kids' isn't much better than saying 'everyone should have more kids'

The elites actually have not too bad fertility. Yes this nudge would require something as lofty as a total shift in culture, no one was under the impression this would be an easy problem to fix surely?

The elites actually have not too bad fertility

The elites have figured out how to have "marriage"' in a way that suits them (even then, there's a baby price for a woman choosing to stay at home that might keep the fertility rate amongst the elite from truly booming)

But the actual businesses they sit high up in value the anti-fertility ethos of "I define myself by my work", for obvious reasons.

It's not so much that your plan is hard and more that it doesn't attempt to explain why the original culture shift worked, so it's unclear that your new one can replicate it.

My theory?

Liberal feminism (aka "do what you want", "women can do anything men can do") always seems to win, even against more radical (in some ways, anyway) feminisms. Why? Because it suits people trying to succeed or exploit in the marketplace - turning women into fungible widgets makes them easier to plug into your system.

Your high fertility Hollywood is nowhere near as good a handmaiden for capital so, if you believe material factors and elite interests determine cultural production, why would we assume it's even doable?

I feel like there's an issue of the tastemakers generally being of demographics that don't reproduce especially frequently. Gay, single women, urbanites etc.

I mean, a poor to working-class high school kid who had dreams of going to college and being a doctor/teacher/whatever is always going to by more sympathetic than a 30-something without a lot of friends, including to other 30-something without a lot of friends.

I'm coming around to the belief that nothing can or should be done. What, exactly, are we trying to save? Groups that choose not to reproduce will die off and be replaced by those that do. Same as it ever was. Why should society, at immense cost, prop up genetic dead ends. The amount of intervention necessary would be staggering and as far as I know has never been successful.

Post-AI the future of humanity looks weird anyway.

Personally, if you care, you should have as many kids as you can reasonably tolerate.

Because if this ai thing doesn't take off and fertility doesn't make a U-turn and quick the economies of every major nation on earth are going to collapse in like 30 years. It's such a straightforward and obvious reason I'm baffled why it gets asked every thread. We don't have anything like the timescale needed to make a Mormon and Amish dominated society work. We just don't.

I think that's hyperbole. The economies of major countries won't collapse, they will adjust as they always have, perhaps with a small decrease in standard of living. With an average age of 48.1, Japan is already 30 years further progressed than the United States on this timeline. They are doing just fine economically. Arguably, they have a higher quality of life than the U.S.

Honest question, what exactly is meant by economic collapse here? It's not obvious to me why a lower birthrate would be so disastrous. Even if production output goes down there's less people to produce for, right?

It's the ratio of dependents to earners, not the aggregate number of people. At least, that's what I'm concerned about. It has the potential to lead to a death spiral: working taxpayers have to pay more to support more non workers, the incentive to work dissipates, and the world is made much poorer.

The proportion of people retired and thus not producing and just consuming becomes much larger. Imagine the difference in your personal life if you and your partner had to both support 3 sets of parents each instead of one each. Yes, I know taxes do that in practice but it's the same result. And this extra pressure on the younger generation further compounds and makes it harder to reproduce in future generations. And it's hard to build wealth without inheriting it because the next generation will be too small to absorb all of the current generation's capital investment.

To reply to both you and @ThenElection , as repugnant as it would be to say, the historical(?) solution to population burdens has been to simply...reduce...the number of mouths to feed.

Covid-19 was supposed to help with that.

Old people don't work (or work much less efficiently if you force them to). The more old people compared to yoing people you have in your society, the more people you have to provide for and the less people are able to provide.

Look at South Korea, currently with a fertility rate of 0.78 (!) If this rate continues, this means there will be 5 grandparent/old person for every grandchild. It means the next generation will be 40% (!) the size of the previous generation. This is a doomed society, it is completely unsustainable.

Where I disagree slightly with @aqouta is that it's not even a matter of taxes and wealth, not that they don't matter, but it's a red herring. It's really a question of labour. There simply won't be enough labour to actually do shit that needs to be done, wealth be damned.

Accumulated wealth is meaningless if you can't actually find or have enough anyone to pay to do things. If you don't have kids or grandkids to look after you, it's going to have be someone else's kids that wipes your geriatric arse. And they can charge a lot for the pleasure, because the demand will be sky-high. Assets and capital actually need someone to use them. It all comes back to labour. Again, you need people to actually do shit, and not have a signifant percentage of the manpower taken up by caring for older generations, which drains wealth from society, it doesn't generate it.

Also, in many countries, generational wealth stored in property, and the property market will crash as the population shrinks and demand crashes. The value of many assets and wealth in general will crash - the idea that the older generations can used their accumulated wealth (perhaps substainal due to not having kids) to pay for people to look after them comfortably is an illusion, a lie. (Don't get me started on national debts which will have absolutely no way to pay off with a shrinking labour pool).

I suppose we can just hope robots and AI bail us out. Although that might just cause its own not dissimilar issues.

You run into a ton of problems where costs are structured and can't change as quickly as the population. National pensions heavily depend on growing populations, national debt doesn't but servicing it becomes an increasing burden as the population shrinks, many businesses are similarly more leveraged than survivable. You also have the problem of every pension wanting more income producing assets as all the demand for loans sinks and collateral drops rapidly in value.

Yes, a Japan-style economic malaise seems likely. I'm okay with that personally. I do think it's funny that the complete replacement of a population is "meh" to most people, but pensioners taking a 20% pay cut is a disaster of epic proportions.

Well, I guess it is a slow day.

I’m in favor of balanced parental leave and related benefits. But I also group them roughly in the category of subsidies, and I thought those didn’t have much effect on fertility.

You might see some effect from rolling back no-fault divorce. I argued before that “really strongly socially enforced monogamy” was fundamentally illiberal, and I’ll stick with that, but it does oppress both sexes equally.

For an even more drastic shift, bring back heavy industry. Women are just as good as men at the service economy. They aren’t so good at hammering steel. Unfortunately, automation and outsourcing makes this an implausible intervention, but if the American economy looked more like 1950, so would the households.

You might see some effect from rolling back no-fault divorce.

I actually think this is one of those "can't put the genie back in the bottle" situations. If we went back to requiring cause for divorce today I suspect what would not happen is a return to traditional marriage. What would happen instead is marriage rates would crater. My impression is understanding of the downsides of this arrangement are well known and lots of people, women especially, would not be interested in risking it.

That’s a fair point.

Women are not the people you need to convince to get married - men are.

But that said, I don't think "requiring cause for divorce" is really what the trad people want - that's one component of it, but it still wouldn't fix the problems with marriage as it exists now. I think you can make a compelling case for bringing traditional marriage back, but just taking bits from it and the modern equivalent piecemeal seems to me like it could create some horrific outcomes.

Trads don’t like social engineering anyways, and they mostly just have a revealed preference for favoring people who do things the right way(according to them).

Trads don’t like social engineering anyways

Are you sure? Traditional social structures are a form of social engineering and I'm pretty sure the trads are very big on those.

women are not the people you need to convince to get married — men are

Is that true? The research is that men benefit more from marriage and are much, much more likely to remarry if a marriage ends (in death or divorce). I can't find polls for first marriages/singles but I'd be curious how they relate.

I don't think that either of those claims really defeat the argument being made - but I didn't provide any evidence myself so good enough. I think that men being more likely to remarry reflects the difference in "relationship market value" between the two. Men who are high quality enough to have already married and then lost a wife to disease or accident are much more valuable than women who already have children and other obligations, who are most likely going to have a harder time finding a partner.

That marriage is good in the longer term for men is a more difficult question, and one that I don't think you can really quantify statistically - but even if you did, saying that it would be optimal for men to marry doesn't actually make them more likely to marry. You could apply the same logic to drug addicts - being a heroin addict is extremely bad for your quality of life, and the optimal decision is to stop being a heroin addict immediately... but we don't actually see that happening and heroin addicts still exist.

I should have specified further that not only do men remarry more, they also express a desire to remarry more. This could of course be a sour grapes type situation where women claim to not want to remarry because they're aware they'd have difficulty doing so if they wanted it.

In any case, if anyone has statistics about desire for a first marriage among men vs women it would be interesting to see numbers.

I really don't think it is possible to get a statistical answer for this - there's also the hypothesis that women get married to secure resources, and a divorced woman still has access to her partner's resources and hence does not actually need to remarry (while the man, who is no longer getting any action, does need to get into a new relationship to meet his needs). There are a lot of confounding factors, although if there is real and rigorous data on this I'd love to see it.

How do men benefit more from marriage and what research are you referring to?

Keeping in mind that men are uniquely screwed over by divorce/family courts and that ~80% of divorces are intiated by women (of the top of my head).

Divorces being initiated by women would support the claim that it's not men who need to be convinced to be married. The benefits I was referring to was married men living longer, reporting higher life satisfaction, etc, than single men (the opposite direction was true of married women)

Being screwed over by family courts is only relevant if you're having kids with someone, and in that case being married/not married is irrelevant, as not being married to the mother of the child you are claiming paternity for doesn't release you from child support payments or grant you more visitation rights.

it's not men who need to be convinced to be married

I agree with you on this point

(the opposite direction was true of married women)

I straight up don't believe this unless you have a source.

Being screwed over by family courts is only relevant if you're having kids with someone

Alimony and asset splits can be and often are brutal to the husband even if no kids are involved. Kids just make it worse.

https://www.theguardian.com/lifeandstyle/2019/may/25/women-happier-without-children-or-a-spouse-happiness-expert

Standard caveat re replication crisis, bad science reporting, etc.

More comments

That is certainly the stereotype but I'm not sure how true it is. According to Pew (at least back in 2020) fewer single women than single men (in every age group) were looking for a relationship of any kind, though a larger fraction of single women were looking for a committed relationship than single men. More recent data shows an even further decline among singles looking for relationships, though mostly among single men.

The libertarian solution is to abolish blanket entitlement programs for the elderly and repeal child-labor laws. In essence, make children profitable again. A large motivation for wanting higher fertility is to maintain the economy, so why not internalize those gains onto the people who make the children?

Start banning/heavily, heavily restricting children from using any kind of social media. We're standing on the very precipice of AI induced mass wireheading that will probably cut the fertility rate in half. The weird tech induced neuroses that lead to (incels/Tate/west elm caleb/FDS/simping for e-girls/insert your favourite zoomer/millenial social pathology) are going to be supercharged once we have kids raised in front of screens since they were toddlers mixed with an endless fountain of hypertarged AI genned content that can feed off an entire lifetime of mass data harvesting. There are no liberal solutions to this IMO.

Israel has a great many advantages in terms of parenting that we can export to the rest of the world! Not just culturally, but also in terms of policy:

  1. A healthcare system using the voucher system, paid by the government, rather than tied to employment. This is more related to the US than anything.

  2. A voucher system for maternity wards. Hospitals compete to get the most births, and as a result the maternity ward in most hospitals is really nice.

  3. Healthcare includes a large battery of tests & information kits during pregnancy.

  4. Facilities to monitor & help with babies' and toddlers' growth, and vaccinations (Family Health Centers / Tipat Halav).

  5. Pre-school and elementary school operates 6 days a week, leaving parents with 1 day / morning a week to make more kids.

  6. We don't do this in Israel, but it's really important - build more housing units. High prices seem a-priori bad for fertility.

Hospitals compete to get the most births, and as a result the maternity ward in most hospitals is really nice.

Huh. Interesting. This made me wonder if Israel might have unusually high quality of maternity care as regards how birthing mothers are treated on a personal level. Looking it up, the country apparently has the lowest rate of C-sections per 1,000 live births. Impressive. This is a potentially under-rated way of increasing birth rates, in that people with less birth trauma are more likely to give birth again.

It both reduces birth trauma and reduces health risks of further births — once you have a cesarean section it becomes progressively more and more dangerous to get pregnant with each subsequent c-section. (This is why some people try to have vaginal birth after c-sections)

.... In writing this comment, it occurs to me to wonder if this is an underappreciated factor in lower fertility rates in modern times. One reason Israel tries hard to avoid c-sections is because they assume it will be upsetting to mothers to have their fertility curtailed by having them. My understanding from people I know in the states is the attitude towards c-sections is much more cavalier, since it's no big deal it ends up meaning you can't have more than one kid after this. This must obviously have at least some depressing effect on birth rates...

I agree. It is also worth noting that doctors will recommend limiting births after a c-section, since a woman can only have a limited number of them (2-3, depending on doctor and the hospital's policy from my limited experience) and one c-section increases the chance of needing another c-section dramatically. Some places don't even risk vaginal birth after c-section (VBAC) and will automatically schedule a c-section for women that already had one. On the margin, I do expect a higher c-section rate to decrease TFR, then, even divorced from birth trauma - which is also very very real.

However, I'm not sure how much of that can be credited to the healthcare system, rather than other factors. C-sections IIRC are more commonly needed for older mothers. In Israel, a large portion of births are from the ultra-orthodox community which starts very young. That alone can explain some of the difference. Some more of it might be explained by the stricter monitoring pregnant women undergo here, but I'm not familiar of any data on that specifically.

There is definitely policy-level pressure to reduce c-section rates/hospitals proudly citing their low C-section rates/other things going in with the C-section rate aside from younger mothers. And lots of support for VBAC and even for VBA2C

As a counterexample, Finland has equally good policies in the field of healthcare/childcare, but their TFR is abysmal. I get closer and closer to the conclusion that it's the Jewish memeplex that preserves Israel's TFR, not anything else.

There are probably more examples of low TFR with good healthcare than high TFR with good healthcare. Other than Israel, I can't even think of any for the latter.

That said, I think the general direction of causation is both (modern country/culture) --> (low TFR) AND (modern country/culture) --> (good healthcare), rather than (good healthcare) --> (low TFR). I do think you can increase TFR with better healthcare policy, but I admit I have no empirical data to back that up, only personal experience. I'm also not familiar enough with the actual workings of European healthcare, so I don't know if their policies actually match my suggestions or not.

What would I do to make myself have more children? Hmm. At the age of 24, the barriers preventing me from having children with my boyfriend are;

  • I do not have enough money to afford diapers, much less food for another person, so I would increase the minimum wage to the proper rate it should be, which is $20 an hour. I would, in the same vein, eliminate tipping as a substitute for wages as well to eliminate the hostile tipping environment and poor wages encouraged by my state’s poor labor laws. That would include eliminating all Republicans from my state’s government, as they have opposed all measures to do what is listed above.

  • I am not confident that, should I approach trying to build a career in my state with a child, that I have protections from corrupt, lazy and immoral business owners who would abuse their position of authority over me to compromise my work/life balance. So, I would replace my state’s labor laws with laws similar if not exactly to California, so that I could, for example, have a lunch break and maternal leave for my post-pregnancy complications.

  • I cannot afford medical care for myself, much less my children. I suppose with higher wages that would be solved on it’s own, but if not, I would change whatever policies need to be changed to decrease the cost of medical care. I am not too verbose on medical care policies to know what the causes for high costs are and how to solve them.

  • My social network is dangerous for children, as it consists of social conservatives who will try to shame my children into gender roles and disrespect my choices as a parent, and I would not want to reach out for help from them in an emergency. If I had higher wages, I would not need to work so much and I could spend time developing friendships to replace my network. If not that, reducing the cost of interstate travel so I could move to a state with a locale more suitable to my personality would solve that problem. I am not too sure what policies need to be enacted to solve high-cost interstate travel, as I am not verbose in those policies as well.

  • Emotionally, me and my boyfriend are recovering from the effects of growing up in an abusive, socially conservative household, and need therapeutic services to confirm we won’t pass our issues to our children. I supposed lowering the cost of therapists falls in the same category as “decrease medical costs”.

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My social network is dangerous for children, as it consists of social conservatives who will try to shame my children into gender roles and disrespect my choices as a parent,

Sorry, but I can't help but think you're mistaken here - the statistics and science are extremely clear on this point. By encouraging your children to adopt binary gender roles and preventing them from becoming trans or non-binary, they're actually helping to protect your children, rather than making the environment more dangerous. Trans people encounter all sorts of negative outcomes when compared to their cis cohorts, and making sure that your child does not grow up trans is not just going to protect them from those deleterious outcomes, but also save them from the rampant transphobia encountered all through society. You should actually be thanking these social conservatives - the difference in life expectancy, suicide rates, etc for trans people is so stark that keeping your children cis is one of the most powerfully positive things you can do for their life outcomes.

Trans people encounter negative outcomes from social conservatives attempting to enforce a gender binary, so if I wanted to protect my trans children from transphobia, I ought to keep them away from social conservatives, not ko-tow to them. I can do nothing about my children being trans, because it is not a choice. And if my children were not trans, social conservatives would emotionally and verbally abuse them for stepping outside of the gender binary. My sons would grow up misogynistic with little success with women, emotionally closed off from himself, his friends and his family, abusive (see misogyny) and lonely like I have seen every single conservative son of conservative parents turn out as. My daughter would have poor self esteem, be victim to abusive relationships due to that, anger issues and extreme emotional immaturity, like every conservative daughter of a conservative father I have seen.

  • -15