Isn't Credit Suisse the bank that laundered and legitimized all the money from the drug cartels? They kept getting slaps on the wrist for a bunch of atrocities and bad choices and now finally they are seeing some repercussions of those choices?
Yep. I went and quickly looked them up on Wikipedia. They have a list of controversies so long that the outline of the "controversies" subheading won't even fit on my phone screen.
Drug cartel money, strong ties to the Russian oligarchy, forex manipulation, corrupt dealings with African governments, destruction of records, tax fraud.
Sometimes I wonder if the Swiss newfound love for a weirdly biased neutrality, which goes to the extent of destroying their own military gear instead of selling it to Ukraine, is rooted in appeasing certain Russians who stashed their fortunes in financial institutions such as Credit Suisse.
I think you are thinking too specifically. Neutrality is to appease all the rich that have stashed their fortunes. If most of the world condemned the US or China for an aggressive act, I would expect them to act the same.
If they take a side, they lose the fortunes of more than just Russians. Anyone who is controversial and has money in Switzerland will realize it’s no longer safe in the event the world exposes their bad deeds.
> Neutrality is to appease all the rich that have stashed their fortunes.
How did you get to this conclusion?
* Switzerland has neutrality since the Vienna Congress 1814/1815, more than 200 years
* they weren't really rich back then
* instead, big powers of Europe feared that Switzerland will join one of their opponents, so it was dictated to Switzerland originally
* later, when Switzerland saw how the countries surrounding them got demolished again and again in each war, they actually adopted it. It is now in their constitution, article 185.
* the consitution can only be changed by the electorate of Switzerland (about 6 mio people), not the government or the parliament
So why would these 6 million people add / keep neutrality "to appease the rich" ? Not all swiss people are rich. In the southern french parts the risk to sink into poverty is even higher than in some parts of Germany!
Maybe a not-so-swiss centric view can shed more light on your (wrong) hypothesis:
In Europe Switzerland isn't the only (current) neutral country. We have Austria, Ireland and some smaller ones, like Liechtenstein. We used to have also Portugal, Sweden or Belgium in the neutral camp. Are they all known to "appease the rich" ? I doubt. Except if your idea of not appeasing rich people is having a government form like Soviet Russia, GDR, or Yugoslavia.
This comment feels like it’s more directed at the comment above mine than mine.
I’m not implying that is where Swiss neutrality comes from, more making a counter point that IF they are staying neutral (currently) to protect fortunes then it’s not just to protect Russians.
I wasn’t making a statement about its history. Banking in Switzerland I realize is fairly recent. I am not even saying that’s definitely what they are currently doing.
Your initial assertion that Swiss is neutral to make money is not accurate. Historically it was to prevent casualties in wars between France and... whoever else. This has enabled it to be the bank of anyone trying to escape prying eyes - but that is a byproduct of their neutrality; not the purpose of it.
> I's been some correlation between "neutrality" and "money" for centuries.
You state still this falsehoods after I pointed out that
* other swiss pecularities (e.g. their banking laws about anonymous number accounts) might be more to blame
* other european neutral countries didn't exhibit any correlation between neutrality and money?
If you talk about correlation, then you need to take in the full data set. You speak general about neutrality, so take in ALL neutral countries. Malta, Ireland, Austria, Liechtenstein. And maybe even neutral microstates like Vatican.
Only THEN can you come to a conclusion. But not by only focusing on one single country, and extrapolating your observation to all of neutrality.
Your comments are not contradictory, it feels you're both just looking at different corners of the same picture. like you mention yourself "they weren't really rich back then", now they are. How did they get so rich?
Mostly industrialization and export of machinery and (later) pharmaceuticals. Banking is less of a relevant factor for Switzerland's GDP than most people realize. If I remember correctly even the insurance business (which is also considered financial industry) is larger than banking.
> Mostly industrialization and export of machinery and (later) pharmaceuticals.
Pharmaceuticals exports are highlight of Swiss exports, but as only 25% of the GDP is attributed to industry[0], this can't be a significant part of the economy.
Now how much of the 74% of the service revenue is banking is up for grabs, as tourism for instance is also a potentially big part. But even if it was only half of that, it would still be bigger that the pharma I guess ? (except if patents and/or IP was also counted as "services" ? but would it be that big either way ?)
I know that the banking sector in Switzerland only employs 89'000 people. So the statement a bit above "banking doesn't contribute as much as people think" seems to be believable to me.
The sanest political system in the world, where power is only ever reluctantly relinquished to the higher authorities (individual -> city -> state -> federation), unlike - say - the US, where the power that still remains in the hands of local govts is nothing but a joke.
Lee Kuan Yew explicitly cited Switzerland as the best run country in the world and a model for Singapore in the 60's when he designed (with the help of foreign advisors such as Albert Winsemius [1][2][3][4]) the way the country's institutions would work.
Singapore is effectively a one party state, with the same group (PAP) in power for over 60 years. They outlawed public protests except for ones specifically sanctioned by them. They control the press. The son of the guy you cited is the current leader of the country. It's nothing like Switzerland at all and never has been, unless your argument is that both countries are capitalist and have leveraged their unique positions as tiny nations between major powers, establishing themselves as banking hubs. Politically, socially and otherwise they're nothing alike.
And just to drive home the point why citing unbiased sources is important: According to the early fascists they were a movement lobbying for democracy and women's rights, among other positive sounding demands. That was right on their manifesto in big letters. It didn't quite turn out that way, and in fact looking back with the power of hindsight people like Mussolini had questionable motives from the start.
Maybe because above all Switzerland always bring political stability as a key element of prosperity (a bit like the Chinese but with true democracy allowing this unique feature). The country has been in a permanent coalition government for the last 150years.
If it were because of Neutrality, then surely Ireland, Austria, Malta must have become equally rich. But ... they aren't. So certainly other factors than just neutrality contribute to it.
The neutrality is used for propagating "you and your money are safe here", which is true at first glance. They are ready to take it from you as soon your seat gets a bit too hot for your liking.
The 1814 neutrality was granted after Napoleon invaded the confederation and made it a republic, only to be saved by Russia, no less, so a different solution had to be found.
They were dirt poor back then.
No country was afraid of Switzerland doing anything, they had no military might whatsoever, the current militia model was introduced in fear of a Nazi invasion.
There is no poverty is switzerland, even the worst off are better off than us citizens on food stamps. The treasury returns so much money to the cantons, they could build a socialst utopia if they wanted, so long the economy as a whole is fine. They already have such a thing on a federal level, its just not called guaranteed minimum income. Its been in place for a while. This all is before corporate and income taxes and vat.
Say what you want, but soviet russia and yugoslavia and such, exepct for the communist elite did not give an iota about appeasing the rich.
Not saying it was the best way, but they stood their ground until they sank.
Switzerland will sell out 1000 times any day before that happens.
Okay. But ... isn't "me and my money" not save in Malta? Or in Ireland? Or in Austria? Or used to be it unsave in Belgium, Portugal, Sweden? All mentioned countries are (or were) neutral.
> Your statement about constitional changes is vastly incorrect,
They have things like "Tafel" like in Germany, they have students that pay lots for their flats but have little income, they have homeless people ... the idea that there is no poverty, or no risk-of-poverty doesn't make sense, even when you don't know reports like the one I posted.
Oh, and not everyone can drive to Italy or Germany to enjoy 50% cheaper prices for groceries.
> even the worst off are better off than us citizens on food stamps
One doesn't exclude the other. You can be poor, and still be better off compared to some dysfunctional state.
Swiss confederacy kicked the ass of the Burgundy juggernaut[0] and was feared by all its more powerful neighbours which would have dreamed of controlling the natural fortress that is switzerland against their own rivals
In this risk-of-poverty statistics, usually the people are compared to their peers. Like how much are other people earning on average? If you are under a certain level below this, you have a risk of poverty.
Many people regularly oppose this, as being inexact.
Maybe this is correct ... but: the mean income level also influences prices, e.g. for flats or groceries. Swiss prices here are exceptional. What costs 1 EUR in Germany costs 2 swiss francs there. And francs and euro are more-or-less on parity, if you exchange them. Droves of Swiss people drive to Germany (or Italy) to buy groceries. But: some people don't have a car. They can't do that.
I saw a map of Switzerland with different colors on how high the risk of poverty is estimated in which region, and clearly the french speaking parts around Genevre had a worse risk assessment than e.g. the italian or german speaking parts. You couldn't really see the Röstigraben, but you could still see a stark difference.
The Russians exerted a vast amount of effort to recruit and generate sympathetic leaders in Europe (and elsewhere; i.e. Trump). They had a lot of sympathizers in Germany, and a small cadre of NATO-skeptics in France.
Austria is a lot smaller and easy to influence.
It's also not in NATO, and there is strong public sentiment to stay out of NATO -- which means there is a vacuum Russia can enter in ways that it cannot with full-on NATO members.
Switzerland's neutrality is a fact of geopolitics. The geography of Switzerland means a big part of the country is essentially a natural fortress with bunkers cut directly into the mountain and firing down. There is a reason the Nazis never invaded and that wasn't neutrality (neutrality didn't do Belgium any good in WW2). Unlike other countries, Switzerland can afford neutrality and it is ultimately the most profitable option.
These days, I don't think Switzerland really fears an invasion, but it's true that the financial incentives have taken over. At the level of the population, the neutrality culture runs deep, and as Switzerland is one of the richest countries in the world, there's really no reason for the average Swiss to be upset about it.
The Nazis had plans to invade -- Operation Tannenbaum -- it just wasn't a priority. You're fighting the Soviet Juggernaut in the East, and the British Commonwealth + the US in the West. Why piss away tons of troops to get a small mountain country with no strategic resources that's effectively bottled up?
But knock out the UK or the Soviets, lower the pressure, and there is little doubt the Nazis would have made a go of it eventually.
> Switzerland is instead clearly picking Russia's side by
... implementing all EU sanction packets against Russia?
... by providing financial and civilian aid to Ukraine, like money for the government, generators, medical aid, winter clothes? The aid of Switzerland isn't that large, truth be told. But, compared by GDP, it's more than Turkey helps.
>No one expects Switzerland to pick a side. They just expect their arms industry to honor their agreements and their government to be fiscally responsible and sell their retired gear back to it's manufacturers.
Can you provide a link which proves that switzerland has an obligation to sell its under licence in switzerland produced tanks which still are part of its military (reserve) to anyone? Thanks.
During the Holocaust, the Swiss "neutrality" included wholesale theft of Jewish depositors bank accounts — which they finally admitted to in the 1990s but still refused to pay any of it back to the survivors until an American lawsuit forced them to — so color me unsurprised.
And they saved 25000 domestic and 21000 immigrated Jews. Not much ... but compared to their country size, this was more than Vichy France.
In any case, why is reaching back more than 80 years relevant here? My country (Germany) did *WAY* bigger atrocities back then. From my point of view, the 80-years-ago swiss people were decent, giving the circumstances. We shouldn't forget that Switzerland was surrounded by Nazi countries or lackey countries: Hitler's Austria-Germany, Mussolini's Italy, Vichy France, occupied northern France. They did bad things, certainly. But there was also a lot of pressure involved.
And guess what: Switzerland paid reparations for this, a fact that people trying to bash Swiss behavior back then are unlikely to state.
Not just that, they also rejected jews right at their borders beginng for asylum.
And that guy Meili who exposed the scandal was ostracised and forever remained unemployable.
He was not a banker either, he was a security guy in a bank.
Lets not forget that the italian fascists and the nazis safely parked their looted money in switzerland.
Switzerland was used as a corridor by Italy and Nazi Germany to transports "goods".
Its a little known fact that the allies bombarded switzerland towards the end of ww2, a bit of a reminder for product weapons to the axis of evil as a neutral state.
Switzerland rejected over 39,000 refugees, most of them Jews, and asked German authorities to stamp Jewish passports with the letter J in order to identify them to Swiss border agents. In 1942, it explicitly closed its borders to Jews entirely. Here's the AP News on the subject, since you're not aware: https://apnews.com/article/0be18d0f36c04b86d7592bc6b16f7fa6
Switzerland has always been aggressively neutral to the extent of annoying the rest of Europe, not just during WW2 but all the way back to the Hundred Years War.
> This time around they went to the extent of refusing to sell ammo for their own weapons arguing they'd be used in a war.
Well, even Germany did this before 24st February 2022, and it never was neutral.
In the case of Switzerland, the neutrality is in their constitution. Neither the government nor the parliament can change it. It needs a public vote of the ca. 6 million people large electorate. Germany had it much easier, the "don't export to crisis regions" wasn't in constitution. And, truth be told, it was never followed through 100% (e.g. why would one export military ships to Saudi-Arabia, which is in war with Yemen?).
> They are outright destroying their arms industry
Yes, they do it. For me, this sounds that they like their neutrality more than money --- however, people usually assume more sinister motives. Like that Switzerland is somehow getting black money from russian Oligarchs.
To me, this sounds entirely implausible --- or if it happens, than in a similar scale as in EU countries. First, as said, the neutrality is in the hands of the electorate. Russian Oligarchs cannot smear 6 million people. Second, it is well known that Switzerland implemented all 9 sanction packets of the EU. They even seized russian assets, about 8 billion EUR. That is more than can be said of some EU countries!
So, if they still do business with Oligarchs, then only because these Oligarchs aren't in one of the 9 lists of sanctioned entities the EU created. In that case, we should blame both Switzerland and the EU.
Apropos "swiss liking neutrality": i read that in May 2022 there was a representative poll. It turned out that 85% of the swiss liked the neutrality and don't want it to change.
Over the past 30 years Switzerland had pulled back from its neutrality stance somewhat, participating in European organizations much more than it historically had over the past 150 years. So if you only understand Swiss neutrality in the context of the recent era, it may seem odd. But from a longer perspective it's more a regression to the mean.
As we leave the post-Cold War era into a more uncertain and conflict prone[1] future, it's entirely unsurprising they'd retreat. Or perhaps another way of looking at it is that it's been awhile since Swiss neutrality was truly tested, and perhaps people had assumed more of a change than there really was.
[1] As between major powers and also, at least regarding immigration and trade, within the West. Conflict never really dissipated much across the rest of the world.
The Swiss neutrality to not take part in a conflict started during the mid XVI century. It was formalized in 1815 but it was already the normal policy before that.
Switzerland's doctrine of neutrality is not newfound, rather it's a strategy they've built into their geography over centuries. They're nestled between mountains, so it would be pretty difficult for any other nation to attack them, but up until 1945, Europe was home to very frequent wars of conquest, which were devastating to property and people. Switzerland's strategy was to lean into their natural defenses by building hundreds of thousands of bunkers [0] in the mountains and signalling "Hey, we aren't looking to attack you, but if you invade, watch out for our extremely well fortified defenses. By the way, would you care to keep your valuables in our vaults? Lots of pillagers out there in the rest of Europe."
(but seriously, skim through the video. Switzerland's defenses are wild and beautiful.)
Anyone trying to spin a geopolitical explanation for Credit Suisse’s malaise is lost. Switzerland has many banks. They’re doing fine. Credit Suisse is not because it’s the poster child of bank mismanagement.
Well, if you wonder, I can help you. What you think might be plausible on first sight, but really isn't.
* the neutrality isn't "newfound", they have it since the Vienna Congress 1814/1815
* back then the big powers of Europe feared that Switzerland will join one of their opponents, so it was dictated to Switzerland originally
* but later, when Switzerland saw how the countries surrounding them got demolished again and again in each war, they actually adopted it. It is now in their constitution, article 185.
* Switzerland is a direct democracy. The constitution cannot be changed by the government. And not even by the parliament. Only a public vote of all the electorate can change it.
* the swiss electorate is about 6 million people large
* the swiss banking sector only employs about 89'000 people
So, what can we learn from this? Your postulation is, in all likelihood, wrong. Why would normal people, like Carpenters, Farmers, Teachers, Nurses vote for neutrality to "appease certain Russians" ? They have no benefit from this.
Also, Switzerland isn't the only (current) neutral country in Europe. We have Austria, Ireland and some smaller ones, like Liechtenstein. We used to have also Portugal, Sweden or Belgium there --- is any of these current or previously neutral countries linked with money laundering? I don't think so. Therefore we can even dismiss that somehow money laundering is linked to neutrality.
If anything, then something else in the swiss law system is responsible: their banking secret laws. One can still open an anonymous "number account" at swiss banks. It's not cheap, but that is just one more reason why it attracts tax evaders and criminals.
And finally, that today Switzerland is specially linked to Oligarchs needs a proof. Why? Simply because Switzerland implemented all of the nine sanction packets of the EU. Despite not being in the EU. So Switzerland, like any other EU country, sanctions the Russian state, certain russian companies, certain russian individuals. Including some people one would classify as "Oligarch". All of them? Probably not. But then again ... this would be a problem of the EU, by not adding them to the sanction lists yet.
Swiss neutrality goes back much farther that that, IIRC. Early 1500's. Different political organizations back then, of course, but the Swiss have been doing the neutrality thing for half a millennium, and through much worse situations, I don't see why they'd stop now.
It seems like a lot of it would be due to adverse selection, and that's not something new. Lots of people don't need Swiss bank accounts. What are the characteristics of people who do?
Being Swiss is a good reason to want a Swiss bank account. Rich foreigners might be a little suspicious?
It's somewhat similar to who really needs cryptocurrency, except you don't get the enthusiasts or small accounts, either.
Maybe look at who unmoderated "free speech" forums become popular with. Or who needs to use Tor.
This story is really stupid journalism, Switzerland is blocking re-export of useful stuff but this one is a non-story. The gear that is being destroyed is old stuff (this model (B) has been decommissioned in GB in the 90ties despite what Le monde days (they did use still model (C) which is a more modern system ) for which there are no spare parts anymore and nobody except the Swiss knows how to operate. GB has the right to get it back if they want, by contract, and neutrality doesn’t block it. They have been informed that Switzerland wants to dispose it long time ago but they didn’t ask for it back. This probably because the gear is useless given how old and broken it is and clearly the Swiss army cannot teach the Ukrainians how use it without breaking international law (specifically the Hague convention). There are probably for GB much more effective ways to help the Ukrainians than sending them garbage.
It's kind of easy to be neutral when you're landlocked inside NATO, I guess. No reason to even join. Neutrality didn't quite work out that way for Norway in WW2...
Great cheese down there though, gotta give them that.
> It's kind of easy to be neutral when you're landlocked inside NATO
I guess you think that NATO is why the Swiss people added a neutrality clause to the constitution of the Swiss Confederation during the Restoration in 1815?
Only in the bizarro world where I make laughably false statements so you can point it out to feel clever.
No, the NATO part is only commenting on current events.
The reason they weren't invaded during WW2 was mainly that they had a strong military in a very mountainous country with next to no strategic or material importance to Hitler. Just not worth the trouble. If Hitler saw a strategic reason to invade Switzerland he would have; he had no reservations about ignoring neutrality.
I figured all this was obvious given knowledge about basic history and geography, and that it didn't need to be spelled out that I know NATO didn't exist during or before WW2
> The reason they weren't invaded during WW2 was mainly that they had a strong military in a very mountainous country with next to no strategic or material importance to Hitler. Just not worth the trouble. If Hitler saw a strategic reason to invade Switzerland he would have; he had no reservations about ignoring neutrality.
Are you sure? I was told in history class that it was because too many of Hitler's cronies stored massive amounts of money there. Which would obviously have disappeared to the allies before they could capture the whole country.
I've never investigated that in detail though so perhaps this was just wrong.
Either way it's still true it was quite easy for the Swiss to remain neutral since they're a pain in the ass to invade, and there was no reason to. I can definitely see them being more useful to him with their neutrality intact, but in some sense that only reinforces my point. If Switzerland had, say a bunch of oil, the equation might have changed.
Norway on the other hand had no realistic hope of remaining neutral once Hitler laid his eyes on our iron ore and massive, honkin' coastal line.
Whereas Sweden managed to maintain their neutrality partially by continuing to sell iron ore to Germany throughout the war as well as allowing them to move troops through them en route to Finland. And Hitler was more interested in the Soviets at that point, so Sweden would have been a distraction.
Finland was also neutral originally and they ended up in all sorts of wars theoughout WW2.
It seems pretty clear that neutrality in WW2 was respected by the large powers only to the extent it was convenient, and ignored otherwise. Most of the countries that remained neutral were city-states and the aforementioned countries + Spain(aligned with the axis powers though still neutral), Portugal(insulated by Spain) and Ireland(insulated by the British).
If the world supports Ukraine, but Switzerland refuses to support them, no matter who the opponent is, then that is neutrality.
Knowing the Swiss system very well, it would surprise me if there have been nefarious intents and ideas behind this.
Do not underestimate their cleverness.
Small country, suddenly rich with no worthwhile exports, all the big corps incorporated there because they feel the rule of law is given and functional and the money safe and the institutions work.
Small country, if you go from the centre of zurich, you will see one corporation after the other for a 30 mile radius, shoulder to shoulder.
Its a remarkable amount of the liveable territory.
Really, do not underestimate their greed and cleverness.
> If the world supports Ukraine, but Switzerland refuses to support them, no matter who the opponent is, then that is neutrality.
"The world" is a hard over-statement. Europe excluding Belarus and Russia itself, but including Switzerland introduced real sanctions Russia, as well as the US, Canada, Australia, NZ, Japan and ROC, while BRICS, close to half the global population, can be considered actively cooperating with Russia.
> Small country, suddenly rich with no worthwhile exports, all the big corps incorporated there because they feel the rule of law is given and functional and the money safe and the institutions work.
Swiss manufacturing is very highly regarded globally, and some of the largest chemical, pharmaceutical and food/drink companies in the world are Swiss. "Greed and cleverness" is a weird way to phrase "hard work and intelligence".
Agree with you on neutrality, stability, solid rule of low, low to nonexistent corruption and working institutions being a magnet to attract foreign investment.
Also agree with the Swiss being very clever, motivation being making money.
Completely disagree with you on no worthwhile exports.
As a matter of fact, Switzerland is one of very few European country that has managed to not only preserve but even grow their native manufacturing in the last 20 years instead of moving everything to China.
Look, I'm not trying to discuss strategy or glory or good vs evil, just the concept of "less war." WWII was 6 years. US involvement in more recent conflicts like Afghanistan, Vietnam, Iraq was a lot longer. Meanwhile various civil and border wars have gone on beyond a decade.
I was merely surprised by this, but the position that one has to want war in order to want to support Ukrainian defence in this unprovoked war of aggression is at best naive.
Damming water to Crimea and shelling civilians in Donbas for 8 years is hardly “unprovoked”. It might not be sufficient justification for such a deadly and destructive invasion but it’s certainly provocation.
Cutting off water to your own citizens because they’re under foreign occupation is certainly a provocative move that will put the legitimacy of your government into question, yes.
And many who are not Americans look with disbelief at those who would deny the right of self defence to a nation, embolden and support an imperialist tyrant, virtually guarantee more wars in the near, and justify it with a cynical call to "peace".
Eschew flamebait. Avoid generic tangents. Omit internet tropes.
Please don't post shallow dismissals
Please don't use Hacker News for political or ideological battle. That tramples curiosity.
and more
The neutrality always was based on cowardice amd completelly fake.
They probably did not give away their military gear because the price or conditions they have envisioned were not right.
Make no mistake, Switzerland is right up there in the top 5 as far corrupt government and institutions go, they just have the better suits, camouflage and clandestinity.
Sure, life is good in Switzerland for most, the system is one of the best as far median income and level of wealth goes, but that did not fall from the sky.
This country had to ration food until not too recently, and before that, Russia had to save them from Napoleon.
They have a system of referendums that should remind everyone of why Plato and Aristotle of the dangers of the tyranny of the majority. An especially awful example has been Switzerland's treatment of women. In 1958 the men voted on the idea of giving women the vote, and they voted against it. Another referendum was held in 1971, at which point women finally got the vote. Of the Western nations that were nominally democratic, Switzerland was the last to give women the vote.
As of 1971 women could vote in federal elections. They could also vote in about half the cantons' elections (the Swiss version of states).
About half because 1971 started with 36% of cantons, it rose to 52% of with the same election that made women able to vote nationwide, it was 60% of cantons when the first vote with women was held. It wasn't until 1990 that women could vote in every canton.
Sorry to be that guy, but cantons and states are very different.
Cantons have vastly more autonomy than any us state, on any matter. The US system does not even come close.
I am not sure which one has more pros/cons, though.
How are the cantons that much different from the states? Legally, the Swiss federal government has authority over the armed forces, currency, the postal service, telecommunications, immigration into and emigration from the country, granting asylum, conducting foreign relations with sovereign states, civil and criminal law, weights and measures, and customs duties. In 1990, when the last cantons approved women to vote, it was because of the federal government enforcing it on them over their objections.
That reads pretty much verbatim like the enumerated powers in the US Constitution. And the idea of the federal government forcing states/cantons to abide by "letting people vote" is a common thread as well.
The major difference I see is that cantons (unlike states) can enter into agreements with each other or foreign countries without federal approval.
But I never lived in Switzerland! I'm probably missing something?
It a grotesque way, the mob rule issue can be defended these days by the argument that the opposing parties will always water down referendum decisions. It is ironic, but good.
As you write, you have no real clue about banking. Let me tell you, all that you wrote, and more, much more, can be said about every single big bank out there, anywhere.
How do I know this - I work for one of those, not (and never) CS. Since I started ours is rather spot clean from what I can see (but IT is very far from those who make similar decisions), what I see is regulatory downfall from their fuckups 15-30 years ago. Some of it was outright amoral criminal behavior, but most was due to bad processes and way too much incompetence in ie KYC checks. Too much focus on current cash flow, way too few questions about where the money came from. That's thing of the past in regulated markets (but then you have the whole universe of tax havens, some also in US or conveniently around)
Thanks for the inside perspective, very helpful. There's no doubt that corruption in banking was a complete free for all in the past during times of intense financial deregulation, and that regulated markets have improved their vigilance markedly since then. It makes sense that for banks such as yours, there might be a sort of echo of the past in scandals being outed presently. And a lot of those cases are more wilful ignorance and poor due diligence as you say
Of course CS is in a tax haven, and their dirty laundry generally seems much fresher and much more deliberate than negligent. E.g attempting to help cover up assets of Russian oligarchs under sanctions after the Russian invasion of Ukraine.
And the Credit Suisse leaks last year revealed just how much dirty money flows through the bank still to this day.
I am more than 100% confident that those controversies have nothing to do with the current mess. CS is failing not because it laundered cartel money, it is failing because it didn't manage risks properly, namely Archegos and Greensill. You guys make it sound like the universes punishes those who do bad things which is laughable.
They're both on the list too, and it seems based on a cursory glance that shady dealings were involved in both cases.
I was just confirming the notion that they're a very shady bank. I'm not qualified to say whether the shadyness is the primary cause of their downfall, but it doesn't seem outside the realm of possibility to me.
And sure, anyone can reduce any view down to a laughable caricature. Good job, I guess.
Yeah this makes sense. One of the cases where A causes both B and C.
People willing to take part in criminal activities are almost definitionally less risk averse. You're risking fines, loss of reputation, prison, unemployability, destitution.
Not then surprising that those same people would be more willing to take undue financial risk, all the while maybe closing an eye to some red flags.
>> Drug cartel money, strong ties to the Russian oligarchy, forex manipulation, corrupt dealings with African governments, destruction of records, tax fraud.
If anyone is interested in digging into this more, read up on the City of London. Not to be confused with London, the capital of England, the City of London is effectively a weird de facto tax haven city-state embedded in London.
Edit: Somehow managed to write "nationstate" instead of "city-state"
You might also be thinking of HSBC [1] or Wachovia [2] or possibly one of several Australian banks [3] or maybe this European bank [4] or this one [5], or indeed Credit Suisse.
The thing to know about money laundering is that the rules are basically set by the USA, and after the 9/11 attacks the US made money laundering a strict liability crime. It means you can be found guilty of it even if you didn't know you were doing it, made extensive efforts to ensure you didn't and even if the actual violations were made by someone else not yourself. And money laundering is defined as moving money on the behalf of criminals, or not doing enough to realize you were doing so. How much is doing enough? That's subjective, up to the regulators and they are allowed to do things like tell you you're doing enough then later change their mind and prosecute you for it.
Because it's impossible to successfully comply with such a moving target, every large bank in the world is constantly being fined for AML violations. It doesn't mean much about any specific bank to say it's been fined for that. If it was possible to actually comply, there'd be no crime that involved any financial component any more i.e. no drug trade or fraud, because the banks would always detect it, suspend the accounts, report the owners and seize the money.
Clearly these crimes do still exist because banks don't have enough information to reliably beat all criminals. They don't have police powers, so the most they can do is rely on heuristics. It's especially tough in parts of the world where cartels may have unlimited budgets to beat your systems, corrupt your employees, corrupt government employees or threaten your staff with having their arms chopped off if they don't help out. AML regulations don't recognize these problems as legitimate however, meaning you as a banker can be prosecuted and jailed for up to 20 years because someone, somewhere else in your organization, wasn't suspicious enough about some activity and report it in a timely manner.
That's why it feels like banks are always "getting away with it". Governments, even the US government, can't actually enforce the laws as written because if they did then the entire financial industry would collapse overnight from mass staff exodus. This was the very real risk that led to HSBC being fined rather than directly prosecuting the staff. There was apparently a big fight inside the US Gov about this between the Justice Dept and the Treasury, with (I think) the former wanting prosecutions and the latter pushing for no prosecutions. The Treasury knew that prosecutions could succeed and if they did, there'd be a very different and much worse kind of bank run.
To me, it doesn't seem reasonable to expect bankers to achieve what the world's police forces and intelligence agencies never could. But the public doesn't really understand these dynamics. Whenever they read about banks laundering money, they think it's bankers who are knowingly taking part in organized crime and so demand punitive action. Governments can then blame the banks for crime whilst simultaneously taking some billions of dollars from them for the general budget. In the short term it's a win for them. The true cost is somewhat subtle and long term, in things like innocent people being unable to get bank accounts, or finding it very difficult, and a general feeling of society being rigged in favor of the bankers who never seem to be punished for their claimed crimes. The fix would be a mix of changes to AML rules and the PATRIOT Act, transforming the system into something a lot more mechanical and objective. It might make some crime a bit easier, but that can be counterbalanced by e.g. increased funding to the police.
Selective enforcement of broad regulations like this is one of the hallmarks of a corrupt regime.
The great thing about everybody being guilty is that they can use nudges and winks to force people to toe the line about anything at all, far in excess of the power and authority granted to them by laws on paper. Get uppity and they'll send some goons around to smash up the place.
This not a case of the hapless simpletons in government having a good heart and the right intentions, and yet again bungling the legislation spectacularly, and now they're dutifully serving the people by doing their gosh darndest to keep the financial system from collapsing due to their prior incompetence. These laws and regulations are constructed and implemented by and for the ruling class, for the purpose of increasing their wealth and power.
They are being used left and right. Want to penalize a European bank? Pull some some fine in the $x00 millions out of thin air. The way the laws are structured, it's almost guaranteed that they broke some law somehow. Don't like this dude/girl? Ban them from banking for no reason because your ToS allows you to and make it hell for them to recover their money.
Wow, this is the best comment I've read in a while. I was one of those ppl who thought that bankers were "getting away with it" but I can clearly see your point here.
Agreed, great explanation. Also worth noting that US government has forced many industries other than banks to somehow detect, report and/or catch money-laundering activity, while also lacking police power. Any time you hear KYC (Know your customer), anti-money-laundering is essentially the reason.
Thanks for this comment. This highlight the crux of the issue. Banks should have something like "banking neutrality" where they'll bank anyone and any money until a court order says otherwise.
It's funny most people accept this situation which can significantly abused by lots of parties (See: Operation Choke Point as an example). But if you live in a small village, and there is only one bank branch, the banker there not liking you means you being unbanked for no reason.
That was not my experience. I worked a lot with various banking regulators (Fed, OCC, NFA, British PRA, a bit of SEC, FDIC and probably a few I don't remember now), although not on AML matters. My experience was that before being slapped with a Consent Order, you get warnings. They are either Matters Requiring Attention (MRA) or Matters Requiring Immediate Attention (MRIA). It is highly improbable the regulators just hit you with something out of the blue, just because they feel like that.
Even there there is the progression of MRA (Matters Requiring Attention), MRIA (Matters Requiring Immediate Attention) before going to actual criminal prosecution (which invariably ends in a settlement, which takes the form of a large fine and a Consent Order). Just take a look at [1], where an unnamed bank has appealed an MRA given by the OCC on the topic of AML in 2020.
Yes, but in for example the HSBC case that didn't happen, I think (might be wrong, it's been years since I looked at this stuff). Although there were MRAs, there wasn't any intermediate step I think between that and prosecution?
Senator Levin. Did the OCC ever cite a violation of law for
noncompliance with AML statutes prior to 2010? Do you know, Ms.
Dailey?
Ms. Dailey. I do not believe we did prior to 2010.
[...]
Senator Levin. What about informal enforcement action? Was
there any informal enforcement action taken against HBUS prior
to 2010?
Ms. Dailey. There was not.
I can accept that this isn't how the system is meant to work, although the core problems of subjectivity remain even if there are warnings. For instance, wasn't a key pillar of the case against HSBC that it didn't consider all Mexican clients to be high risk, and the regulators decided they should have done? We might consider that this was ~15 years ago, in the environment of 2023 such a classification might actually be considered racism! So exactly what the standards are for things like "high risk", "politically exposed persons", "structured transactions" and so on are always open to interpretation.
Meanwhile KYC and AML makes lives of the average Joe much tougher - banks increasingly ask more documents every time, and more often. It will not stop real criminals anyway, as history shows.
A shocking idea would be to prosecute the source of the ill gotten gains, or the underlying crime, rather than imposing these AML externalities on other actors. After all, something is not money laundering if the funds were legitimate to begin with.
Alas prosecuting dictators and government officials in third-world countries doesn’t really happen, and the only way to prevent them stealing the nation’s wealth is to block the transfers
I take issue with the idea that AML as currently implemented is the "only way" and also with the characterization you've made that what we did stopped the stealing.
> A shocking idea would be to prosecute the source of the ill gotten gains, or the underlying crime, rather than imposing these AML externalities on other actors.
Of course. But there's 2 big problems with that from a government's perspective.
1) Prosecuting actual criminals would require hard work: real investigation without having an automatic sneak peak into everybody's finances is hard.
2) This wouldn't give the government any extra power.
Your point about banks being forced to do what governments cannot is a stretch. Your comparing a thrird party (governments) to a first party (banks). Your drug dealer knows your an addict well before your parents do. Also as another poster said banks get warnings to respond.
You can miss me with this banks are the victim. It has been shown over and over and over from the dawn of Banking that no matter who you are if you have a lot of money there is a bank willing to work with you.
Whether banks should be allowed to do this is a different question but they are absolutely not victims.
> if you have a lot of money there is a bank willing to work with you
That's how people think it works but it's actually not the case, and one of the reasons why SVB ended in disaster. Read those threads and you'll see complaints that SVB was the only bank that "understood" startups, because they appear out of nowhere with millions of dollars. The word "understand" is euphemism for "startups trigger AML filters" because if you show up with lots of money from a single source, that looks like it might be corruption or drug dealing to the automated systems banks use. And then individual bankers aren't allowed to override the checks because they might become corrupt, and it's not just their lives on the chopping block if that happens, it's their bosses lives too.
SVB was built from the start to bank this sort of clientele, so their AML software was configured to allow it, but this led to a huge over-weighting of startups in their depositor base which then led to massive influxes and outflows of capital that they didn't manage properly. Other banks don't have quite the same sort of instability in their depositor base.
<< Governments, even the US government, can't actually enforce the laws as written because if they did then the entire financial industry would collapse overnight from mass staff exodus.
This.
Treasury recently had to send a note via remarks to indicate to banks that 'derisking' resulting defensive SAR filing may be overdoing it. Naturally, some regulators will question every instance SAR was not filed so the banks are in weird "punching bag" position.
While a lot of text written out, this is an extremely weak argument.
It boils down to "they can't do it perfectly so they shouldn't try at all".
And the exact opposite of defense in depth.
Tons of places people will cast a blind eye to things that they know are illegal if they can profit off it. Banking is absolutely one of those areas where there are huge incentives to do so, as it requires no effort and is easy to profit off of criminality.
This law says we're not going to allow you to be part of the broader global system while knowingly profiting off of criminality. Yes you may not catch 100% of it, but you sure have to thoroughly try to eliminate it. And there will be financial punishments to ensure you're not doing it just in name only.
This is exactly what we want in our financial system.
I really don't understand the motivation behind your post. "Let's eliminate a great law for crime prevention because it doesn't prevent 100% of crime?" That makes no sense.
> "Let's eliminate a great law for crime prevention because it doesn't prevent 100% of crime?" That makes no sense.
It makes no sense because that's not what my post says. In the final paragraph it advocates for a reform of AML law, not total abolition.
> This law says we're not going to allow you to be part of the broader global system while knowingly profiting off of criminality
No it doesn't, please read my post again. Your statement would be correct if you deleted the word "knowingly". AML laws can jail bankers if they provide services to criminals, even if they didn't know of their criminal nature and even if they did actually make extensive efforts to "know their customer". In fact it can jail them even if there was no actual crime happening at all, simply for procedural reporting failures.
> The fix would be a mix of changes to AML rules and the PATRIOT Act, transforming the system into something a lot more mechanical and objective. It might make some crime a bit easier, but that can be counterbalanced by e.g. increased funding to the police.
Without a real suggestion of what to replace it with, all I'm really hearing is get "rid of it and magic some some other solution."
Transforming it into something more mechanical and objective? Taking a pop culture related concept (a bit contrived compared to what actually happens) of "banks must report all transactions over $10k." Mechanical and objective. So now criminals do transfers in $9k amounts. And we sit around waiting for a new law to be passed to catch this loop hole while criminality runs wild laundering. Then the new law passes, they spend 1 week to circumvent it and we wait around for another law to pass.
It's like trying to legislate what specific exploits a company needs to have patched to say they prevented hackers. Then a new exploit comes out, it isn't in the law and that's used until the law catches up. It's useless.
The solution is recommend/require best practices and also require that companies are responsibility for the security of their systems. Meaning they need to stay on top of things in earnest, and not just say we have those 5 legally mandated patches so we did our part.
Current security is a mess - and I guarantee if companies did have the equivalent banking laundering laws applied for security, all of a sudden a lot of companies would be interested in "provably safe" technology. Instead of today's world of essentially "do what's convenient for security, but nothing that will inconvenience our profits too much."
My post was pretty long already. A complete proposal for reforming AML laws would be a book sized topic.
Structuring is a good example of an AML rule that makes no sense any more. The goal was to try and build a database of transactions that might be vaguely relevant to crime (large cash transactions) but it was phrased in an odd way with a per-transaction limit triggering a report to the federal government, probably to deal with the limitations of paper based banking at the time. Due to this poor lawmaking - whether forced or not - of course criminals just started making deposits of $9,999 each time to avoid the reporting and this was addressed with yet more terrible law, specifying a suspicious transaction pattern whose only definition is "you should know it when you see it". Then they threaten bankers with jail if they don't see it. What if the two sides disagree on knowing-it-when-they-see-it? Well, the bankers always lose. This is hardly upholding the core principles of the justice system and only raised the difficulty for organized crime by a small amount, essentially just requiring the bring-up of front companies so they could deposit large amounts of cash without appearing to be suspicious.
Structuring rules could be abolished entirely. Since that time computers and databases got a lot more powerful, and so now in reality the US monitors all financial transactions of any size regardless of the SAR rules. They just do it via semi-secret programmes at the Treasury (TFTP), CIA and NSA. Arguably they shouldn't and an ideal system would abolish all those things, with FinCEN being folded into the FBI and it being the only agency that engages in financial forensics. Reporting in turn could simply be eliminated and replaced with a system in which the investigative agencies submit database queries to banks, and those queries are then approved by bank staff if they are complying with the rules that constrain police activity. This would bring it into line with how other requests for information (are supposed to) work in the modern era.
You could also go further and state that there's nothing special about finance and that as fishing expeditions aren't allowed in classical law enforcement, transaction reporting should be eliminated entirely. That would be consistent with other areas of law, but is presumably too radical for you.
> It's like trying to legislate what specific exploits a company needs to have patched to say they prevented hackers. Then a new exploit comes out, it isn't in the law and that's used until the law catches up. It's useless.
Yes, and AML is like passing a law that says "don't get hacked, if you do you go to jail for a couple of decades if a regulator thinks you didn't make enough effort". What counts as enough effort? What even counts as getting hacked? They won't tell you these things and in reality it depends on what the press says. If such a law were passed and then actually enforced you'd just see people refusing to work in the computing industry because no salary is worth that kind of risk.
I think the question is whether there's any evidence these laws have mitigated or prevented anything.
After 20 years there should be a vast body of evidence to justify the second, third, and fourth order effects these pernicious laws have had on society. Rather than looking at the facts, we keep pointing to nonsense perpetuating the existence of a self-licking ice cream cone. It's easier to put your head in the sand and ignore or downplay legitimate grievances when the rules you impose on everyone (and enforced at gunpoint) objectively has zero positive outcomes and a litany of negative outcomes.
I'm sure the TSA confiscated a lot of leatherman multi-tools at the airport, but that isn't a benchmark for their success. Take a guess how many terror plots have been foiled by the FBI/DHS/TSA versus random people over the same time span -- or how many caught by random people were already a person of interest by FBI/DHS/TSA.
Did the US intervene because the Swiss were taking much of the cartel laundering market away from their institutions?
Banks don't have a good name, it's not just the Swiss. I mean they have a good name among the corrupt and the rich who love their help laundering money, skirting laws, and socializing their losses. Among the common person, regard for banks probably sits somewhere between politician and lawyer.
Do not worry about the Swiss, they know to launder money even without american clientele. They have many buddies in Liechtenstein with odd funds, charities never yet seen in the so called leaks.
The historic reasons for the us taking a at the swiss have been the hidden, non declared tax moneys from american people and corporations.
The Swiss had a cloaking system in place called banking secrecy, it was even codified into law.
America wanted whats owed to them and that was it.
Swiss bankers would fly to the us physically, in person, pick up funds and goods like diamonds and transport them to switzerland without declaring anything. All the little tricks like labelling the funds fraudulently, diamonds in a toothpaste tube, that was part of the service portfolio.
The us promised to sue and the whole decisionmakers knew they will be safe nowehere but in switzerland, a small country with sub par weather, and if the us got hold of them, they will spend a good time of their lifes behind bars.
The swiss banking secrecy laws were thus burried for good.
The swiss still had the cheek to blather about data protection and privacy and then agreed to hand over a portfolio of "suspicious" accounts.
How hypocritical this was was shown later on, when it became impossible in switzerland and europe for americans to open bank accounts unless employed in Switzerland and being residents.
You say banks have a bad reputation overall, but somehow the swiss banks had a better reputation, even though they are on a level with a carribean tax haven operator.
Swiss banks did not have a better reputation. The idea of rich people and criminals having "Swiss bank accounts" to evade taxes and launder money was a pop culture trope from before you or I were born.
During world war II the swiss national bank took all of the gold looted by the nazis - these were astronomical sums, it's really a shameful chapter of their history which is not widely known.
In addition to turning back Jewish refugees at the border. Also the swiss government even requested the nazis to mark the passports of Jews, so that they could be better turned down at the border.
Also there was a big court case during the nineties, because credit suisse withheld the money of holocaust victims, while at the same time former nazi officials had no problems with their accounts - all at the same bank.
I don't want to interrupt your strange missive against the Swiss but they took Jewish refugees during WWII and it provoked Germany. Hitler called Switzerland "the mortal enemy of the Third Reich" and while, yes, their banks took their money, so did US banks like Chase.
> yes, their banks took their money, so did US banks like Chase
Well, it's a question of scale: swiss banks took in hundreds of billions of swiss francs out of the loot - that must be an astronomical figure, in today's money.
But even that has apparently been squandered by the super competent swiss bankers...
The entire financial system is built on fraudulent activity. HSBC started by laundering money for opium drug dealers into China, regular scandals, revolving door regulators, etc. The biggest surprise is how the system has not collapsed yet. It would not surprise me if the can is kicked further down the road after some people get a hair cut. It would also not surprise me if the multi polar world goes back to commodity backed currencies...e.g. gold & oil.
If anything it’s the opposite issue that could be the nail in the coffin - wealthy Chinese are pulling their money out after Switzerland decided to adopt sanctions against Russians.
Not to pile on the the crazy person's thread, but it would not be unprecedented if Proton is actually a honeypot controlled by foreign intelligence agencies and would not be the first such Swiss company: https://en.wikipedia.org/wiki/Crypto_AG
Not stating an opinion but isn't that more of an issue with countries that choose to do business with Switzerland?
Swiss banking privacy and their grey/black practices are sovereign decisions they have every right to make but it appears that countries are willing to turn a blind eye to it. We could wax on about morality but the real issue here is it's tolerated by the rest of the world so they have little pressure to change.
Switzerland doesn't have any unusual banking privacy laws anymore, those were abolished a long time ago. The US imposes crippling sanctions on any country that doesn't implement the same financial crime / tax information laws as themselves, so Switzerland came into compliance with US policy on that.
Alongside all the other banks that allowed trillions of dollars worth of illicit and laundered funds to criminals, drug cartels, etc. Unquestioned.
Seems like the crime on the banking networks pays more than the fines, since both the banks and the regulators get a profit either way helping process transactions from criminals.
But CS says firmly that they don't need government aid. Are they possibly too entrenched with Russian and drug money that they just can't open their books to the swiss government?
This comes after news that there were "material weaknesses" found in their financial reporting the last few years. They also failed to "design and maintain an effective risk assessment process to identify and analyze the risk of material misstatements". Finishing it off with massive outflows of customer funds - larger than anticipated - which has "exacerbated and may continue to exacerbate liquidity risk". Will they survive?
Wikipedia is okay for some topics, particularly if they're completely uncontroversial and lots of people edit the article (note: both conditions are necessary, just one is insufficient).
However, for anything even remotely controversial, Wikipedia is a real crapshoot. A lot of subjects are controlled by motivated cabals of editors. They may list sources, but there's no guarantee that those sources are representative, chosen in an unbiased way, etc.
If you know how the sausage is made, your trust in Wikipedia will plummet.
generally i find the opposite: controversial articles are rigorously pruned of anything even slightly dubious, while errors in uncontroversial articles remain for many years
this is because the motivated cabal includes people on opposing sides of the controversy, watching like a hawk for their opponents to make errors they can correct
I have rarely seen a balanced pair of opposing cabals. One side usually wins out, at least on individual articles.
> watching like a hawk for their opponents to make errors they can correct
This is a very idealistic view of how these battles are actually fought. Just settling for correcting the opposing side's errors would be very magnanimous. In reality, cabals usually try to get the opposing cabal's editors banned. The types of errors they look out for are violations of editing rules. Usually, both cabals are in violation of the rules, so it's really a question of which side is more effective at gaming the system. It's very common for both sides to try to bait their opponents into violating the 3-revert rule, for example.
Once one side wins, they can do pretty much anything with the article. Most articles about controversial subjects end up under the control of one side or another.
There are a lot of cases where a small minority is heavily invested in a topic at the individual level, while the majority (who have an opposing view) are not. The small minority has the incentive, the energy, and the time to keep fighting for their narrative, while nobody in the majority makes the same effort as none of them individually have as much skin in the game. This dynamic plays out all the time on Wikipedia.
Thanks for this. My biggest pet peeve is "Wikipedia is just some random dudes" given that it's so trivially easy to see where Wikipedia sources their info.
Where Wikipedia _says_ it gets its references from. You still have to double check that the links work, the content hasn't changed, and that the actual reference is referring to statements that actually agree with the argument or context ( to say nothing of the facts) in the corresponding wiki text.
If there's ever a good use for an AI in Wikipedia it would be vetting citations for at least a first order correspondence with text indexing the citation and flagging things that seem to diverge beyond some threshold.
They are a bit less important than they once were in terms of volume, but they are still massively interconnected with the rest of the system. There is zero chance they‘re just left to implode without governments and central banks stepping in.
They'll just disappear and the pieces of it be sold off. They're not that interconnected anymore since they've been selling everything the past few years.
I think the AUM comparison is something everyone needs to be careful of. Vanguard has a lot of AUM from me (from my point of view anyway), but it’s (hopefully) 100% passed through to security issuing organizations. They only get to rake a fraction of a percent from me for their operations.
Wayyyyy different than a bank with $billions in checking and savings accounts where they can do ??? with it.
I think a relevant question is who is "they" in this case. We've talked endlessly about the US Treasury and the Fed, but CS is based in Switzerland. A country with a long and storied history of banking independence. The US and EU aren't going to stand by and do nothing since our businesses likely have major exposure but one would hope the Swiss would deal with this appropriately.
CS operates in 50+ countries. All the largest entities have resolution/winddown plans agreed with their regulators. In reality they probably won’t be used because the SNB and Fed will fear contagion.
No, the taxpayers will foot the bill. Can’t have bank CEOs missing out on their hundred million dollar compensation, that would ruin the system! It’ll just be 2008 all over again - the people who screwed up will be rewarded, everyone else will be punished.
That's what the newscycle and everyone else is spinning it as. So, most likely it's just a slow moving crash that we're witnessing but it already happened.
Someone on HN mentioned yesterday that CS is being priced in at a 10% chance of failing in the CDS market. I wonder how much this increases after this news.
Folks need to understand the difference between market cap and enterprise value. To buy a company, you don't only have to buy the shares of stock, you also have to assume all their liabilities.
True, liabilities should be less than assets. But that's why banks are freaking out in the first place.
One of the things that made it harder to convince other banks to buy SVB is the memory of 2008 when banks who bought other banks inherited all their liabilities and lawsuits.
> Why isn’t Dimon buying S.V.B.? He has complained about the headaches of buying Bear Stearns and Washington Mutual at the government’s behest in 2008, having spent years fighting litigation and paying fines for those firms’ bad behavior. Bank executives who were around back then remember that.
It's good to want banks to be punished for causing problems, but if that punishment also applies to people who try to rescue the bank, then nobody is going to try to solve the problems.
> One of the things that made it harder to convince other banks to buy SVB is the memory of 2008 when banks who bought other banks inherited all their liabilities and lawsuits.
Also, no Hank Paulson there with a shotgun to get the job done this time.
If you purchase all of a company's stock, assuming that confers you 100% of voting rights, then you do "own" the company by most definitions, and certainly by the definitions that creditors would use when they demand their money back from your liabilities. In practice, once you own all those shares, you control the board of directors and can vote on how to handle liabilities, for example by using mechanisms like leveraged buyouts to (legally) shift liabilities to a new entity.
The trouble is that to purchase 100% of shares of a company, someone has to sell those shares to you. Just because the stock tanks to $0.01 doesn't mean the board members will sell you all of their shares and voting rights. They don't have to accept your offer.
Surely the stocks are held by all kinds of people and institutions and only a very small fraction of the shares are up for sale at any given time. Am i missing something?
Also the stockprice listed is the price of the cheapest share currently offered, isn't it?
> Surely the stocks are held by all kinds of people and institutions and only a very small fraction of the shares are up for sale at any given time. Am i missing something?
Well, when the price goes up from your buying, more of those shares become available.
> Also the stockprice listed is the price of the cheapest share currently offered, isn't it?
Well, probably last successful transaction, but these are more or less the same number. What you're getting at is that buying the stock piecemeal will drive up the price, which is true.
Usually when you want to buy the entire company, you don't buy it piecemeal on the open market. You offer a premium to the market price to the board and the board decides whether or not to propose the deal to shareholders for approval (tender offer). Or you could do a hostile bid which is where you go directly to shareholders.
This case is specifically about this strategy in bankruptcy but I wouldn't be surprised to see this decision propagate more broadly.
> J&J is among four major companies that have filed so-called Texas two-step bankruptcies to avoid potentially massive lawsuit exposure. The tactic involves creating a subsidiary to absorb the liabilities and to immediately file for Chapter 11.
Ah, but you don't have to actually assume liabilities, you can only lose as much as the purchase price.. So buying a company with 10 billion in debt and 10 billion in cash for $1 isn't $1 overpriced. It is an opportunity to take a 10 billion bet with "heads I win, tails I walk away chuckling."
When the stock owner is another company that has a majority (or 100%) stake it's usually considered one company for liability purposes, at least in the U.S.
Otherwise every company would set up dozens of intermediary shell companies to protect every valuable subsidiary in the hopes of a favorable court ruling if things go belly up.
Is it hard to sell half a company you bought for a $1? Seems like more of a psychological problem than a technical one..
I mean sure the whole market could realize your purchase was an absurd liability, but they would still be immune as long as they only own their fraction, so unless the whole market prefers your bankruptcy over a free bet..
You want to buy Bob's Delicatessen, a business which makes a tidy profit with their storefront schlepping sandwiches to the local cube farm dwellers.
Bob's Deli has a number of on-going costs, like the lease for their storefront, contracts with suppliers to deliver goods, maybe a business loan from a local bank that got them going in the first place.
These are all liabilities that you, the new buyer, must take on. You can't just rule from on high and say these business deals were with the old Bob's Deli and go away with the purchase. An example of a purchaser (apparently/allegedly) trying to say that former liabilities no longer apply: Disney buying up Fox, or Lucasfilm, and saying they no longer have to pay royalties out to authors who wrote novelizations of films, or expanded universe properties[1]
Those are liabilities of the business; not you personally, the controlling shareholder. If the business's liabilities exceed its assets, you take the business through bankruptcy; you are not personally liable (generally, with limited exceptions).
A company exists, and it has a loan on a building that it uses.
It does nothing else, the building is worth $100m and the loan amount is $95m.
So the company is worth $5m (the difference) and you could buy it for about that much (ignore whatever the company might DO with the building).
But now the real estate market crashed, the building could only be sold for $80m, but the loan is still $95m. Now the company is worth -$15m. So you could buy it for a dollar, but you still have a building worth less than the loan on it.
If real estate goes back up then you're quids-in, if it doesn't, worst case scenario you just walk away having lost $1. You personally may have $20m in assets, but those are separate from the company you just bought.
They owe folks money. If you buy them, then you owe those folks that money. So you'll have to pay the purchase price, and then pay the company's debts.
That's the whole point of corporations - that the only thing available for debts is the assets and equity of the company, not the assets of individual shareholders, execs or directors (unless there are some very specific circumstances, which is called "piercing the corporate veil).
Yeah but then you immediately own all their debt and liabilities. Which is why SVB UK was sold to HSBC for 1 pound because they were willing to take on all its debt.
It's all fun and games till all the staff demand their wages, suppliers demand their money, banks call in the loans, etc. That's the real reason such owners want to flee.
CS has been tethering on the brink of bankruptcy for a good while now -- interesting to see if this will finally push them over or not. The Swiss would not be amused for such a stalwart of the banking business to disappear, but...
Oh cool, was gonna mention the similar topic. As a rarity I'm viewing on a laptop right now and the anti-bot wall still doesn't process after holding. I believe this is Bloomberg specific feature as well - just wondering if others have the same problem on wayback but seems from my data points it'd be universal across devices. Thanks to the person below to post another link, will give that a shot
Most Swiss have written off this pile of garbage a long time ago. I also don't think anyone would give them a bailout. Scandal after scandal, they occur so frequently you aomost expect the next one to be in tomorrow's paper.
If the taxpayer is going to have to bailout CS then I will demand that CS becomes property of the state. I consider the SNB part of the state so if this is going to cost the SNB a large sum I will not be happy.
Also what were all the stress tests for and the new liquidity requirements that Swiss banks had to follow unlike SVB etc.?
Edit: According to the media the bank does not have any liquidity problem but a reputation problem. There has been so much bad news in the last few years that people just don't trust CS. However according to the FINMA the bank is stable and worst case they would get liquidity from the SNB.
The regulators are considering possibly splitting off the Swiss part of CS and some other scenarios.
For many economies that's a possibility, but the Swiss Franc has a much larger circulation than proportional to economic fundamentals (like the pound and dollar). That has to do with the perceived stability of the currency. Normally, a run on a currency doesn't work because it's locally used, but as seen in the collapse of the pound in 92 that made Soros a household name, it could. That would force much higher interest rates in Switzerland (or politically unacceptable inflation).
Yeah, but they’ll just blame immigrants, which will make it politically acceptable. Worked in the U.K. last time around, and Switzerland is increasingly xenophobic, particularly the older generation, who hold the power and the votes.
You mean the country that has by far the highest immigrants : citizens ratio in whole Europe? Nationalism is rising on whole continent for quite some time, Swiss expect others to respect their rules and way of life. If that's a mountain too tall to climb for some then they struggle.
Swiss are type of general population that when given choice if to have 4 weeks of fully paid vacation or 6, they vote for 4 due to negative impact on employers. Given similar voting freedom to british population gave us brexit. I wouldn't compare them if I were you
Not really - they'd need to print $200B - which is 1/4th of GDP.
That would match what the US printed during the pandemic ($5.2T) adjusted to the size of the economy. You would expect to get similar devaluation of the currency.
And for what?
Credit Suisse has been one of the worst banks in the world for a decade.
They only employ 26k people in Switzerland (0.5% of the workforce).
The definition of a "systemic" bank is one that, should it fall, could take the world's entire financial system down with it.
So the "for what" would be: to prevent the world's entire financial system from crumbling.
Should one systemic bank fall and make all the other systemic ones fall like dominoes then it's definitely not unthinkable that there'd be logistics issues and very likely famine in some places and probably civil war in several countries. Politicians may not care much: but they care about getting re-elected. And the whole system crumbling and famine and civil war means politicians not getting re-elected.
I mean... Take a small player like SVB: it's not even on the list of systemic banks. A measly $177 bn AuM: that's literally one order of magnitude smaller than Crédit Suisse.
And yet everybody was whining and crying for SVB deposits to be saved and the goverment came to the rescue.
If they don't bail it out, we will have Financial Crisis 2.0. Just the magnitude of derivatives portfolio of CS is enough to accomplish that. Panic ensues. Contagion will engulf other big banks, starting with DB. Will DB be allowed to fail too?
But if they do bail out, then other national banks will have to quickly bail out their banks, too. Almost every bank in the world will have to be bailed out.
The problem with all these banks disappearing is that there are continuously fewer and fewer choices left. Eventually there will be a handful of megabanks and nothing else. I guess this is happening in every industry these days.
I feel like we're missing a key part of banking infrastructure: somewhere to just park cash.
Start-ups who raise a Series A aren't looking to earn 1% on it - it seems silly that they can't really do anything with it that doesn't take on risk, and that FDIC insurance for just storing cash only goes up to a low amount.
Sure, in the old days when money was physical and there were costs involved in storing it and transporting it that makes sense. But these days, I feel like I'd like to just be able to have an account straight at the Federal Reserve or something, which doesn't earn any interest, but lets me keep my cash sitting there without any risk of a run or anything like that.
But generally, I don't think I really need a bank. I want somewhere to temporarily store any amount of cash (Federal Reserve), and somewhere else that I can invest what I want, if I'm looking for a return, with some risk, on my money. Neither of those are really roles of a bank, right?
There are a few full-reserve banks,
(as opposed to fractional reserve banks), where your money is not gambled with at all, but nobody uses them because nobody wants to pay money to have a bank account.
There are Massachusetts banks insured by the DIF (the inspiration for the FDIC) that has insurance for deposits over 250k, but at that point you're kind of putting more faith in the state of Massachusetts than the U.S. government.
> Start-ups who raise a Series A aren't looking to earn 1% on it - it seems silly that they can't really do anything with it that doesn't take on risk, and that FDIC insurance for just storing cash only goes up to a low amount.
If this is what they're looking for, they should probably just be banking with a SIB [1]. Wells Fargo and Bank of America might pay laughably low interest rates on their accounts, and deposits might technically only be insured up to 250k, but the U.S. government cannot and will not let these banks fail under any circumstances because they would drag the entire U.S. economy down with them.
The government doesn't want you to "just park cash" because it makes monetary policy difficult and loans more expensive. Predictable and cheap credit is an necessary part of a functioning modern economy so the Fed incentivizes(forces) banks to use deposits to make loans.
Custodia in Wyoming has been going through this same thing, recently. They tried to start a 100% reserve bank. The Fed has been ignoring their application for a Master Account for two or three years, until just recently, they were told on the side to withdraw the application or it would be formally denied.
Then, according to the CEO of the bank, the Fed leaked to the press.
Great read. What conclusions should we draw? What should we do, if "money is no longer money"?
It seems like most normal people operate as though money... is money. What should change in the way most normal people do what they do with... whatever it's called now?
Sign up with a brokerage. Use their cash management account. Confirm its FDIC limits (many cover $1M+ with sweep functionality). If you exceed those limits, consider investing excess cash or cash equivalents in treasuries or money market funds that solely hold short dated government backed securities. This is what a Narrow Bank would do with demand deposits. Treasuries are backed by the Fed and the full faith and credit of the US gov; they are considered risk free.
Tada! You have replicated narrow bank functionality. None of us have enough pull to change Fed fractional reserve and banking regulatory policy unfortunately. If you can't change the wind, adjust your sails.
If you don't mind your deposits being exposed to fractional reserve lending and FDIC insurance, CDARS: https://www.intrafinetworkdeposits.com/ To my knowledge, it can provide at least $50M in FDIC coverage with sweeps under the hood, although someone on HN mentioned the other day the limit might be more. Ask your financial services institution what their limit is.
Many do, but even if they didn't, it's free to ACH money to your real bank checking account every now and then that you can spend and write checks with.
Brokers only lend out of specific core cash accounts (FCASH at Fidelity, for example). Whether you hold cash in those account types is your choice, it isn’t mandatory.
Sure they can. You cycle it through very short term treasuries - weekly buys of 4 week t-bills if you really want to be conservative about your cash availability. And if even that is too spicy for you, buy shorter-out t-bills on the market to keep your average maturity lower.
(This mirrors some of the primary strategies used by money market funds, but a startup is in a better position because they can probably accurately forecast their cash needs a week or a month out.)
That is not what they are asking for. Investing in t-bills either requires an account with Treasury direct, or some other brokerage. If you manage the t-bills yourself, then you have to manually initiate the transfers, which has risk of both human error (if you forget to transfer, or input the wrong amount) and counter-party risk (if the brokerage fails, you may not have access to your funds for a while). And for many companies the day-to-day operations require more than $250k in an account just to be able to clear payroll and invoices, so even if they put their reserves in t-bills, their primary account is still at risk.
Small startups and business can easily end up with cash in the multi-millions. We are talking about companies with a handful of employees, too small to warrant a full time financial focused position. As the OP mentioned, there is zero reasons we can't have a zero risk depositor account. And I think most folks would be happy to pay a small fee for the service, but fees should not be necessary as the provider can still get overnight rates. But the only reason we don't have one right now is because the government doesn't want to interfere with the banks ability to make money off of our deposits.
EDIT: For some extra context, I know someone that had a swap account at SVB. In theory they were protected, but they still lost access to their funds for multiple days, which can be very problematic for a business. And on top of that it wasn't (and still isn't) clear how one would recover swap accounts, so they spent the weekend reaching out to lawyers. At this point they have probably spent a week of time sorting this mess out. They are a small biotech focused on finding cures for diseases and have zero interest/resources for financial engineering. And for companies that typically only have 1-2 years of runway, loosing a week of productivity is a huge distraction.
Please explain to me what happens to a sweep account when the primary bank fails. Asking for a friend, who quite literally tried to get an answer to this over the weekend. Also, I asked this question in the Mercury thread where the founders were responding to questions and got no answer.
And apologies, but I added an edit before I saw your comment. But in that edit, I explain how the sweep account was of little comfort during this SVB debacle. If they had needed to make payroll on Friday, they would have missed it. And while the FDIC has restored access to 100% of funds thanks to the intervention, it is still unclear how and when they would have gotten access to the sweep accounts in the case of no intervention.
I don't know, but I can tell you that my attorneys were pretty optimistic about the state of what would happen for the sweep accounts at SVB that invested in external money market funds before there was a resolution. But they're attorneys, so they're not going to commit to a hard answer unless you're paying them, and this was a general information call.
That provides little comfort. I too would be optimistic that the funds would be recovered eventually. I am sure there are some vulture funds that will happily lend you some money at high interest rates while you spend six months in bankruptcy court trying to get access to your sweep accounts, but I don't think that is what most folks had in mind when they signed up for these types of accounts. Until the FDIC clarifies, or until these accounts are actually tested in a real life scenario, I suspect we won't be able to answer that question. So maybe we shouldn't promote them as a solution until someone can answer it confidently.
I don't think this is missing at all. It's literally just what a bank does. Historically, a bog standard, straight-up boring old school bank. No fancy investment banking, no crazy growth strategy, no risky lending to maximize returns, no emperor's-new-clothes financial fashion tricks that we must do now because everyone else does them.
I worked for many years at a bank that did just that. We happened to be able to offer significantly lower deposit rates than our competition, because we had very low exposure to the kind of banking that risks government takeover due to surprising repricing events.
Wealthy customers too lazy or otherwise unable to spread deposits around to stay below the deposit guarantees chose us to an overwhelming degree, in spite of competition that offered better rates.
Granted, it's in Europe. Don't know if there's stuff in the US environment that makes this harder.
Our HOA’s noname bank has a cash deposit sweep where they automatically loadbalance reserve cash between many banks so it stays under fdic limit. Done that for years. But what do i know I’m just an hoa board member not a unicorn startup cfo ¯\_(ツ)_/¯
> It's a lot easier to split $1M between four banks than to split $300M between 1200
If you tens of millions in cash, that money shoupd be managed proffeshionally. And anyway, why should preserving that money be anyone's problem other than the owner's?
There is no such thing as 'sace money' in the world. It just doesn't exist.
We as a society spend more effort making sure money is safe than we do making sure children are safe/not hungry.
A person walking outside cant be safe from getting hit by a car, a child cant be safe from getting an ilness, plant machinery cant be safe from breakdown, a city can't be safe from being hit by an earthquake.
reserves are for more than a rainy day fund. They're also for saving up for predicted maintenance needs. For instance, say the HOA is responsible for the roofs of all the residences (like if the residences are condos). It's a somewhat predictable and high expense that you can map out to 10 years down the line or something. Then you save up for it in your reserves.
Exactly. Many HOAs are now required to get periodic reserve studies that calculate predicted maintenance costs going out sometimes 30 years. Association Reserves did our study (<300 homes) and calculated we needed $1.4M to be 100% funded. Our HOA policies require only 60%, which we think reduces the risk of special assessments to a very low level, but that's still a lot of money. Association Reserves believes that property values in HOAs with high percentage reserves can be 5-10% higher than low percentage (<40%) reserves.
If you have an account with noname for $3,000k and noname has 12 accounts with localcorp1-localcorp12 each of $250k -- and noname goes poof, what happens?
I think, according to the preSVB rules, you get $250k from FDIC and then get a very strong claim to $2,750k from the rest of noname's assets (if no BigBank steps in to buy the part of noname you're connected to).
When I look at acc statement it shows a list of completely different banks each with <250K. If our bank goes bust I presume we get our first 250K that are sitting in the bank itself as soon as FDIC takes over which is enough for operations and will need to contact other banks for our money. It's more like a brokerage account than a regular deposit.
> Also, per FDIC rules, the 250k is per party attached to the account, so at least for a married couple it seems to be $500k per account.
Its per owner per account class, but what constitutes an owner varies by account class, and, IIRC, many class by definition have a single owner.
But, yeah, you can double your coverage in simple directly-owned accounts as a married couple by splitting funds between maxed out single accounts ($250K) for each party and a maxed out joint account ($500K) for a total of $1M in coverage, because single and joint accounts are separate categories.
Brokered deposits are insured in the depositor (not brokers) name. If they still happen to be over the $250K limit, they are historically the least likely accounts to get full value back in a failure, but as long as there is less than the insurance limit per bank, they are fully covered.
SVB offered a sweep account. Turns out it does not cover the lawyer fees that one will incur when trying to figure out how to recover those accounts. Maybe your HOA should hire a CFO ¯\_(ツ)_/¯
This is actually what CDBC proposals are about, at least originally. The idea is that by making the computing infrastructure of the central bank scale up and out, companies and even individuals can directly hold and transfer "hard money" i.e. money directly issued by the central bank, without needing an intermediary bank.
When I was last tangentially involved in such projects it was quite unclear how they thought this would interact with monetary policy. Narrow banks could easily be created today without any new IT systems, but generally, governments are unwilling to do what it takes to enable them for political and financial reasons. At some level it's another obfuscated way of raising revenue without explicitly raising taxes: they force people to deposit money in banks, force banks to lend those deposits to "low risk" counterparties like themselves giving them more money to spend on vote-winning policies, then if the banks go under they either print the money to bail them out (taxation via inflation), or force banks to charge the depositors (taxation with the banks as collectors), thus hiding the true nature of what's happening.
To get banks with zero risk deposits is therefore not really an infrastructure problem - banks could easily just park cash with the CB and then charge fees for administration of things like the websites, the branches and so on. The problem is to convince governments to reduce their spending levels to the point where they can eliminate the rules forcing banks to loan them money, which in turn would allow narrow banks/accounts to appear, and that in turn would allow them to start removing the guarantee on deposits. In such a system people who wanted ROI would have to explicitly move some deposits into funds that expose the liquidity risks and requirements, and which can be left to collapse without a bailout if they make big losses.
Unfortunately governments are currently stuck in a local minima. Although everyone can see that bank runs are bad, and that they're also easy to eliminate, doing so would require people to believe that the government will not bail out depositors at a fractional reserve bank if there's a run. For as long as people suspect the government's commitment to the policy is weak, the winning move is to keep banking with a fractional reserve bank and pocket the zero-risk interest yields. The suckers who put their money in a safer place will end up poorer than those who put their money into a bank that later collapses.
Any bank that tries that would have to charge a fee to cover costs and will quickly lose business to the other “banks” that don’t do that.
The fundamental lie here is allowing banks to tell you you have “cash” deposited and “available” with them. If the online app showed the truth - how your $10k you deposited turned into some shares in mortgage backed securities or whatnot, the alternative “just pay to park some cash” might be able to survive.
I have the same pet peeve about Amazon being able to tell you that you “buy” a Kindle book instead of buying a revocable license to read it temporarily.
It’s all false advertising really and it’s eroding competition and consumer trust.
Certainly for up to $250,000 deposited at an FDIC insured institution, it is absolutely true that you can assume that you have cash deposited and available. If at any time the bank gets itself into a position where they can’t make good on that, FDIC will fix it so you still have your cash.
That is precisely the mechanism that the federal
Government makes available that gives you a place to park your cash.
As a note, this is one reason to still keep some paper checks around for your FDIC accounts.
Because when SVB closed on Friday and reopened on Monday, you could have still used a paper check during that time and it would be honored; but online access may have been shut off.
I would think that it wouldn't be an issue, so long as your total for written checks that have not cleared is both not over your balance amount, and not over the FDIC $250k limit, but IANAL as well.
>The fundamental lie here is allowing banks to tell you you have “cash” deposited and “available” with them. If the online app showed the truth - how your $10k you deposited turned into some shares in mortgage backed securities or whatnot, the alternative “just pay to park some cash” might be able to survive.
That's basically what bond mutual funds are (including money market mutual funds, which closely simulate savings accounts via $1 share price), and they seem to have a market.
The operations fee required for that company posited to have just raised its series A to park its fat stacks of cash is going to be negligible (as it should be constant for any size of account).
Well the other side of the equation is it would be very very tempting to do something with all that cash. Like “let’s fire the CEO who doesn’t go for it” tempting. I don’t see this working without regulation.
The problem for the startup is they are already doing something super risky and so want to be 100% conservative with the cash used to finance their operations. The last thing their investors want to hear is "so yeah, you wanted us to shoot for the moon with your money, but we didn't want to lose out on a couple percent of interest so we invested it in the market and that's down 20% right now so we're having to wait a bit to execute part of our strategy as we expect that to go back up soon".
Like, the problem is that the mental model of this money is wrong: there needs to be a place where a company that intends to take a bunch of money in and then spend it over the course of a few years can do that without it causing everyone a bunch of issues as those deposits were supposedly backing loans to still other people (such as that story with the hashicorp people that was posted here yesterday with the Chase bank branch that failed to understand that a startup's goal is to lose money, not invest it).
The Federal Reserve doesn’t want to be in the business of managing all the infrastructure of payments.
Banks offer a deposit product that lets you do useful things like ‘get your salary paid directly into your account from your employer’s account’, and ‘use a debit card to authorize transferring a couple of bucks to Starbucks’s account’.
> Sure, in the old days when money was physical and there were costs involved in storing it and transporting it that makes sense.
???
This never stopped being the case.
Banks receive deposits and make loans. They are core pieces of modern banking. They play a role in increasing the monetary supply through debt servicing.
Banks make money from loans. A bank that didn't make loans would have to make money from deposits by charging a large fee to its depositors, and compete for deposits with other banks that don't charge a fee.
For most of us, a bank is a place to just park cash. Most people are well under the $250k insurance. It seems the government is willing to cover depositors above that amount now too (SVB).
The Federal Reserve Bank's current balance sheet (as of last Thursday, https://www.federalreserve.gov/releases/h41/current/h41.htm ) shows they hold $4.5 trillion in Treasury notes and bonds and $2.6 trillion in MBS (mortgage-backed securities) out of a total of $8.3 trillion. The first two numbers are face value not market value.
If market value is 10% less than face value for these securities on average, then the Fed would have unrealized losses of about $700 billion. But the Fed doesn't have the same insolvency or liquidity risks that ordinary commercial banks do.
The US dollar would go down in value if there were more dollar sellers than buyers. That would happen if those with dollars had something else to buy. The Us dollar index is up a bit today, so far. I'd imagine at the moment that a run on the dollar would be unlikely. But there could be some combination of circumstances . . .
Corporate consolidation has been going strong since the late 90s/early 2000s, at least in my lifetime I saw the dwindling number of actual independent companies, the vast majority of big companies I was a customer during my lifetime have coalesced into some large conglomerate-ish... And in multiple countries, it really feels it's happening everywhere, even though seems more prominent in the USA.
This is a natural consequence of markets (and proof that economies of scale work). On a long enough timeline, they trend towards consolidation. This is why constant government intervention is necessary, to break up monopolies and restore competition. A government that refuses to engage in trust-busting is broken.
It's also the result of a low tax and low interest rate environment. When you can borrow money for free, or functionally for less than your rate of profit, why wouldn't you buy out your competitors?
I’m not so sure. The US has markets that are resistant against consolidation.
I think this is a natural consequence of letting the biggest companies control the politicians that set the rules.
(What you say is true for pure free markets, but the banking industry is incredibly regulated, and the government routinely picks winners and losers in it.)
> The US has markets that are resistant against consolidation.
I don't see why they are special and the trends are clear, despite the claim. If govt regulation results in a few winners who have played by the rules and are seen as more reliable or it's free market monopolists (or duo, etc), the result is the same.
I'd argue it's the opposite, government intervention and existence explicitly favors the biggest players and nudges the market into oligopolies and monopolies
Diseconomies of scale also exist and are very real, and I theorize that many organizations try to overcome it by applying political pressures on smaller peers.
That's how we get wonderful things like the East Palestine Disaster. Let's deregulate biotech! Coming up next after Shark Week -- Lab Leak Week! Let's deregulate environmental pollutants! You don't need clean drinking water! /s
Bank failures were incredibly common in 19th and early 20th century America. Today they are next to non existent.
Again, take a step back from the ideology and look at the evidence. The count of bank failures before 1930s era regulations vs post speaks to the effectiveness of government intervention.
That's a bit of a circular argument, since there are radically fewer banks now than there were in the past. Just in the last 20 years the number of banks in the US was cut down in half; and back in the 1930s, there were almost four times as many banks as we have now. Fewer banks mean fewer bank failures.
A fairer comparison perhaps would be to see how many dollars of deposits (in some adjusted manner, like per capita, percentage of GDP, or percentage of circulating money) were imperiled as a result of bank failures back then versus now? A hundred banks failing in the 19th century each serving a few thousand customers each would be a much smaller impact than, for example, the hypothetical failure of Bank of America.
Bank failure is a different problem than bank consolidation, of course it would happen less when you don't allow small banks to exist and just give money to the ones that do so that they don't fail, making them richer and protecting them from their mistakes
> This is why constant government intervention is necessary, to break up monopolies and restore competition. A government that refuses to engage in trust-busting is broken.
Conversely, more regulations mean more monopolies due to larger first-mover advantages, and the only viable route is to build until you get bought by a parent company who can sort out the admin.
Constant government intervention isn't what makes competition. It being worth it to start and build a company without, in the slim chance you make it, being a verbal and financial punching bag for future politicians, is.
The fact that economies of scale exist means that even unregulated markets will consolidate. Regulation is an orthogonal concept. On the spectrum of market competitiveness, one extreme end (perfect competition) is an unstable state, and the other extreme end (monopoly) is a stable state. As consumers we benefit from competition, but free markets abhor competition. Something needs to intervene to reintroduce competitiveness into monopolized markets, and that something is going to be indistinguishable from a government.
I agree that even less regulated industries have monopolies, you're right, but those will tend to be companies that either have a natural monopoly (e.g. they own some land) or are so competitively priced enough for their customers that there's no obvious way to create a competitor that can take market share from them. I don't see either of those situations being improved by constant government interference.
At least credit unions remove the profit motive --- I wish that there was a similar movement to farmer's co-operatives, or setups like "Southern States", which is a farmer-owned co-operative for supplies.
Socialism is a _very_ broad term that ranges from anarcho syndicalism and libertarian socialism to democratic socialism, market socialism and many others. The key commonality of these is that you have some form of worker owned economy AKA you have some say and direct responsibility in all aspects of life, including your work.
What is described here is some variant of state capitalism or state monopoly capitalism, which is an extremely controversial form in socialist circles: https://en.wikipedia.org/wiki/State_capitalism
But what is the competitive advantage to be had between a regional bank and a megabank? I kind of love my megabank(and there are quite a few megabanks too). I can expect a branch to be in a foreign country, it provides a pretty great mobile user experience, it is well capitalized, the in person customer service has been great as well.
Is it that less competition allows for companies like Wells Fargo to take advantage of their customers on a large scale? Is it that regional ones can provide fewer fees?
As someone that lives in a rural community, the national mega bank wouldn’t offer me a mortgage because they didn’t understand the local market, whereas the regional bank was the one most people living here got their mortgages from.
I'll add another example. I have a friend who lives in the Boston area and bought an old home about 10 years ago with the intention to gut renovate it. He didn't have enough cash to pay for the renovations without a loan, but the likes of Chase, Wells Fargo and Bank of America generally don't want to deal with mortgage loans like this, because 1) it's a different workflow... the bank gives you money piecemeal as construction proceeds rather than all at once and 2) the bank is basically fronting you the money based on what your home is going to worth when it is done.
For example, say I buy a home for $400k and gut renovate it for $200k. Let's say that the specific renovations are going to improve the value of the home, but it's hard to know by how much. If I go to Chase, they will gladly lend me 80% of the $400k ($320k). But Then I need an $80k down payment + $200k for renovations, or $280k cash on hand to make this work.
If I go to a smaller bank that doesn't do things as algorithmically and knows the local market, they might say "hey, we're gonna give you the $320k down payment and then we think that in that area of Boston and based on what you are doing, the house is going to be worth $150k more when you finish renovations, so we're gonna finance 80% of that $150k as well ($120k). You are still going to need to prove that you have your $80k down payment + $30k (20% of $150k) + $50k (the difference between what renovations cost and what they will add to value of home), or $160k total. So in this example, I need to have $160k in the bank if I want to make this whole transaction work with Regional Bank X, whereas with Chase, I need $280k.
A different take on your anecdote is that your friend goes to a big bank and they're willing to take a 20% down payment which gives your friend 5x leverage on the mortgage. Your friend says: "that's not good enough! I need more leverage because I also need money for renovations!". But big bank says "absolutely not, that's irresponsible."
Your anecdote presumes that the small bank is right and the big bank is wrong. I'm not so sure.
It's not more leverage after the additional money loaned is plowed back into the home's equity by way of the renovations, however. The bank simply needs some way to enforce that the additional money loaned is actually being used for this purpose, and that the renovations are of the 'widely acceptable' type.
There is nlan easy way to know: big bank didn't do the math and come to a dofferent conclusion, they jusy decided they don't want to deal with the problem.
Also, whay does 'right' even mean in this case? They lost the customer. Unless customer default on the loan, they won't be 'right'
>They lost the customer. Unless customer default on the loan, they won't be 'right'
This isn't how banks work. They put in place rules that they consistently adhere to when they decide if they're going to give out a loan to someone or not. The real answer is that if consistently allowing that type of loan would make them more money than it would cost, then they won't be right.
Genuine question is that more to do with the regional bank knowing the market or more to do with JPMorgan Chase having more stringent regulatory requirements and controls? Maybe a little of both?
MegaBanks have automated procedures which are more about automated bureaucracy than regulations.
If Computer Says No, nothing is happening. But Computer lacks any sense of context or local variation. By definition decisions are based on national stats which average a lot of behaviour.
Smaller banks have people - who are probably experts - making contextual loan decisions. Someone's good character and work ethic - or lack of - is going to influence the decision.
This doesn't make decisions infallible, but it's the difference between small-focus rigid decision making, and broad-focus community-dependent decision making.
It's also why so many people are caught in the rental trap. Many of them are perfectly able to afford a mortgage, but they don't match the bureaucratic criteria on some relatively minor point, and so Computer Says No.
It's also why credit scoring is so slanted. I have a perfect payment record, but no loan history because it's more than six years since I paid off all my debts. If I apply for a credit card I'll be marked down because I don't have a large existing credit limit.
This is deliberate policy, because lenders don't want people like me who will pay off the balance in full every month. They want borrowers who won't. This prioritises immediate profitability - until the loan book blows up with a wave of defaults during a recession, because these borrowers are inherently riskier.
Both. It isn't worth JP Morgan's time to understand the different neighborhoods in Boston. Their computer model is their computer model. But think about where you live. I'm sure you can tell me that certain streets are desirable and certain streets much less so. Maybe there is a block nearby with particularly nice foliage that makes it look good. Information that you wouldn't know by looking at a map. A regional lender might be tuned-in to things like that in a way that a megabank won't be, because it's not worth their time to get to know each and every neighborhood.
Seems more like a long-tail thing... mega banks take all the standard things that can be bundled into megasecurities, let someone else worry about all the things that don't fit into a standard box.
Examples:
(1) One reason SVB did well is it understood startups. If your startup just raised a large round and needed a small loan, you were more than good for the money, but most banks would scoff because your business didn't have a long record of profits.
(2) The "simple" thing of having a no-fee, no-minimum checking account with a convenient ATM you can use without fees is something we can take for granted in larger metro ares; in many places your local regional bank may be your only choice.
The one I hear about the most is service. Large, do-it-all banks don't have a lot of motivation to care about you and your $100,000 bank account & half-a-million mortgage. They've got corporate accounts to service against which yours is a mere rounding error. A smaller local bank will find you to be big, valuable customer to keep around.
This is a general economic principle. To put it into an HN context, this is why Google, Amazon, Facebook, Microsoft, and such aren't the only tech companies. When they sit down to spend a dollar, they do an analysis and put it into the place that will make $1.60 (tech companies still have absurd return ratios compared to the rest of the world even after the last year). It doesn't make any sense for them to put it where they will make $1.30. It doesn't matter how big they get or how much money they have, that analysis always holds true.
This is why Google shuts down so many things. Even being profitable isn't enough for them, it has to be wildly profitable and at scale to compete with "making ads better". It is also why it is perfectly rational to be distrustful of anything Google puts out and fear it being shut down. It is not a transient corporate culture thing, it is a systemic issue with where their profit comes from. And yet it is rational for them to float out various things as probes to see if there's some huge profit for them to tap into, even as total long shots.
Meanwhile, other smaller companies can happily survive and thrive on that $1 -> $1.30 return, and then themselves be too big to worry about a $1->$1.13 that a startup may thrive on.
There are some other reasons why One Big Company isn't actually a practical outcome, but this is one of them, and the one relevant to this discussion. It applies to tech companies. It applies to the retail industry; this is why Wal-Mart and the fancy boutique downtown import shop can still coexist, even today. It applies to the auto industry, which is why your local auto dealer may service a local business' 10-car fleet but there will be another company servicing huge fleets. And it applies to banks.
This does not mean a large bank is obligated to be negligent of you, it just mean that there's a pretty strong pressure that is hard for them to resist. Strong internal leadership may push the consumer branch to be friendly as a sort of advertising mechanism for the rest of their bank, because you never know what individual will be in charge of directing a large corporate account in the future. But they'll be vulnerable to the next MBA to come along and cut that cost and boost short term profits, and who will have moved up before the long term costs come in.
In the current system, a loan underwriting office can screw up and deny a loan, and it is no big deal. With one big bank, the same error means someone will never be able to buy a house/car/etc.
Also, not all banks offer all products. Many of the big megabanks product portfolios are missing fairly common financial instruments
It might have something to do with me being on the more chill side of things when it comes to customer service or other issues popping up. I'm pretty non-confrontational. I was also on the front lines of customer service for a while, those people have to deal with a lot, so I don't like to pile on.
Capitalism 101 explains that the consolidation of capital is necessary to maximize the capital extracted from customers. Basing our entire economy on a few average people handling the assets of billions is bound to go disastrously wrong. As we have seen cyclically for decades now. Does a bank exist that hasn’t knowingly laundered organized crime money, paid bribes, or otherwise engaged in substantial white collar crime? I cannot find one.
Credit unions are superior and their disparate ownership structure is a key reason why.
>“The unbridled, competitive free markets that the Right cherishes don’t exist today. They are a myth.” Furthermore, “The Left attacks the grotesque capitalism we see today, as if that were the true manifestation of the essence of capitalism rather than the distorted version it has become.”
I’ll posit that this am academic flight of fancy or distinction without a material difference. The fact is there’s no meaningful competition in the American economy, whether it’s called capitalism or socialism for the rich and debt peonage for the rest.
It’s an ouroboros, a cancer. One leads to the other and back again until everything has been extracted and the house of cards collapses in on itself and the survivors fight over the scraps to repeat these mistakes over again. The sooner mindless growth is reigned in and economic targets are forcibly aligned with reality, involving hard reality checks for very powerful and very despicable (subject of many articles trending on HN this past week) the better we’ll all be.
don't worry, just buy your Federal Reserve CBDC and keep up your social credit score so they don't unperson you with no recourse.
End game is the Fed tracking everything you do financially via their digital currency, this is almost classic Hegelian dialectic where you now have a manufactured crisis to get people begging for CBDC
If you paid attention the last week or so there have been a lot of accounts here promoting the fed bank as a solution.
You are correct and I agree with your assessment for what it's worth. Dozens of banks collapsing has two outcomes. Centralization into TBTF banks or a fed bank. Given the desire to manipulate currency further with CBDC I would suspect the modern money "theorists" in congress are salivating.
In accounting; the Big 8 -> the Big 5 -> the Big 4. EY is looking a bit precarious as they seem to be the goto firm for fraudulent companies so we may end up with the Big 3.
Banking is an industry where it’s not difficult to break up.
(1) ensuring only $250k should ensure capital is spread
(2) the above hasn’t been happening, so people are moving to big banks because the government bails them out
(3) regulations are such that smaller banks have to go through an insane amount of work to get to a “big bank”. Basically the big players have a moat. They’ll get bigger because they control / design regulation. It helps consolidation. Smaller banks can’t enter
(4) it doesn’t help some (maybe all) of these big banks are also board members of the fed. For instance Jamie Dimon of JP Morgan [1] where they funnel support to their corporations
(5) to fix, there’s a lot of options. (a) Simple one is to limit the amount of assets a bank can hold. They currently only do that for the smaller banks (not the big ones) (b) audit the fed directed by congress (there’s a lot of inner dealing there) (c) create a graduated tax based on asset (as it increases systemic risk) (d) good old fashion anti-trust breakups
This is a consequence of computers + internet. 2 ways in particular:
1. Large organisations become unwieldy - computers help track and tame that complexity.
2. Geographically distributed organisations have trouble communicating and can be outcompeted in a region by a company focussing on that region. The internet helps reduce the friction in communication.
Once both of these started getting adopted in the 90s and 00s, big companies became more competitive relative to smaller ones.
And the increase of lobbies and their increasing efficacy in getting tailored legislation adopted. Arguably as politics has become more and more a business. Not just in the U. S
Monopolies and robber barons are hardly a new phenomenon. In fact, I've seen the term "robber baron" derided as an anachronism. I suppose oligarch or plutocrat are the modern terms. Nevertheless, economics 101 (literally I had to sit through this in freshman intro economics) will tell you about forces that drive businesses towards consolidation.
I’m sorta the opposite, I still use my out-of-town credit union. Best investment for my life: been getting $5 every year on my initial $5 share (got in as a child) for a few decades now.
Have a line of credit with a big bank that I don’t really use, but means there’s a bank everywhere I can walk into if I needed a large amount of cash or a bank draft, and I pay it off the same day.
https://www.fdic.gov/analysis/quarterly-banking-profile/qbp/... claims that there were 4,706 banks reporting to FDIC at the end of last year. If anything there are too many banks and too few big internet companies, given that you can fit the five that matter into one acronym.
I’m not sure it’s fair to compare regional banks to FAANG if that’s what you mean? There are plenty of “internet” companies that don’t fit into FAANG just as there are only a few mega banks on the scale of FAANG. Or I misunderstood?
There are also new banks popping up here and there that grow very rapidly due to a more software/tech focus.
And there are smaller more specialized banks that have been doing well (in Switzerland). There is at least one very recognizable co-op bank here and another one with a focus on sustainability.
For the conspiratorially minded, this is a feature, not a bug. The theory is that the creation of the current central banking system was, in part, to wrest power from the growing influence of regional banks back to the megabanks.
It's not a theory nor is it a conspiracy insofar as it is lacking evidence. The collapse during the great depression was used to sell the fallibility of the small banks. Senator Aldrich took the bill written by the wealthiest bankers in America straight to congress to form the fed.
It's relatively well known in fact [0]. Once you realize that was the intention to begin with the structure of modern banking starts to make a lot of sense.
Credit Suisse is a top 50 bank while SVB doesnt even make the top 100.
SVB dissapearing leads to a lack of choice.
Credit Suisse may pose a genuine global systemic risk.
I get that buying your groceries and morning coffee with crypto probably isn't happening anytime soon, but why do you single out those three things? I don't get what you mean by ownership, conversions are automated and easy (things like Uniswap), and transfers are as straightforward as transferring money could possibly be (insert recipient, insert amount, hit send). What do you mean?
Have you tried getting someone from nothing to setup to use all this independently? How long did it take to get them their hardware wallets, multiple backups in multiple secure locations, and various exchange accounts. How much did it cost? Not a chance in hell I’m setting up my parents or grand parents with this crap.
Where do these massive outflows of customer funds go? Do these customers see the risk of collapse before everybody else and move the money to another bank, or.. ?
There are multiple places. For sure other banks. JPM and other “too-big-to-fail” banks received billions of dollars in deposit inflows over the last few days[0].
But for me personally, I’ve been moving cash to US Treasury bonds, and based on recent bond prices, so have others. Short term treasuries were nearing a 5.1% yield as of early last week, and now are below 5% due to demand.
Last fall, I moved cash to HYSA accounts for a higher yield, because my bank was still paying 0.05% interest, presumably because they were loaded with low-yield treasuries and mortgage-backed securities.
In general, a bank is not a great place to park tons of money, at least that’s what I’ve learned. I’m tired of getting screwed by them. What the media calls “faith in the banking system” I call getting bent over. Of course there are valid uses for banks, especially in business. But I’m done parking large amounts of cash there.
How are you holding those bonds? Are you getting physical certificates and putting them in a safe/safety deposit box? If they're held electronically in a custody account at a bank that goes bust then I'm not sure you will be much better off.
Very unlikely, TreasuryDirect is so horrible to use, only if you must like I-Bonds. You just go into your brokerage and buy them on the secondary or even through auctions. TD Ameritrade and Vanguard brokerage accounts make this extremely easy. You can also sell your bonds whenever you want instead of waiting til maturity this way.
Sure its horrible to use. But it does the job, and is directly part of US Treasury auctions, so the prices are provably fair.
Brokerages will skim off a bit off the top when they sell you a treasury. In contrast, TreasuryDirect is direct-from-auction, with the fairest prices possible.
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Besides, its not like a notarized snail-mail form is that hard to accomplish. Back in the day, that was the only way to get any official business done.
Your local bank probably has a notary on hand to sign the appropriate form. If not, look up your Yellow Pages for the nearest notary.
I just checked Google, and there's a bunch of online Notaries. So I really don't expect anyone to trip up over this step.
I personally go to the bank somewhat regularly to pick up $5 and $1 bills. It wasn't that hard for me to have a notary form also signed for Treasury Direct access.
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Besides, there's a chance that you can get everything done online with Treasury Direct. It just so happened that there was some kind of issue that required me to send in a notarized form proving my identity and such.
But using a notary is kind of basic "adulting" skills. There are other government forms that require a notary. (Passports and such).
Can't bonds like these just be hold in custody at the bank, like stocks? They're property title no? Should my bank in the EU go bust, AFAIK, my stocks are mine. Isn't that the case for short-term US treasuries?
As for physical certificates, didn't the entire world move to digital certificates about 20 years ago? I remember my family having those old physical certificates where you'd cut some pieces of the paper out of them and then you'd go at the bank to get your dividends. And there wasn't much security: you stole these and they were literally yours, with nobody who could verify who they belonged to. These physical "bearer" certificates have been the plot of a great many movies but I think it's now (mostly?) a thing of the past?
My point is, if your bank goes bust, how long will it take you to get your stocks or shares back?
Supposing whatever caused your bank/broker/custodian to go bust was also causing the value of your bonds/stocks/whatever to drop and you wanted to sell asap. How fast do you think you could do that?
If you hold a large amount of cash in a low-yielding bank account, you not only get less yield but are also exposed to the possibility of bank failure (which is itself increased by the increase in treasury yields).
Banks never were great for yield, only as a place to route all your payments through, and even that is done badly in the US system as compared to Faster Payments.
The situation you've described has never happened. Out of all the options, it is considered the safest. People forget that the dollar is backed by the ultimate currency - military force.
There is a possibility that members of Congress are actively seeking to undermine the financial strength of the United States, and to do so will not vote to raise the debt ceiling. Weakening the federal government is their goal, conservative social issues are merely justifications.
I’m not sure what relevance you think the military has here in this situation.
There are just a few members of Congress that meet that description, however. They only wield a lot of power when the rest of Congress is divided neatly into two nearly equal parts. The moment actual default becomes a real possibility, the mainstream members of both political parties will briefly form a consensus and kick that can down the road a ways. Just like they always have. Not too far, mind you, because it must remain something they can argue about periodically.
The bad part, of course, is they likely won't do that until we've already done some damage to our credibility.
If you're going to hold until maturity, I don't see how the debt ceiling affects you significantly (any more than it would affect the entire asset market). The treasury will pay you eventually, likely within days.
If you are holding 10 year treasuries and were planning on selling them on the secondary market in July, yeah that could be very bad.
One could think of the outflows as natural. Fed policy was draining liquidity from the system, through QT and interest rate increases. In startup world, fundraising slowed and startups were burning through capital vis-à-vis bank withdraws.
TLDR - Credit Suisse has been a sh*t show for over a decade. This has been coming for a while.
Credit Suisse is in investment banking and wealth management. It does not have a significant retail presence (EDIT - outside of Switzerland). Credit Suisse has also had a number of accounting, risk management, and other scandals over the last few years. They were bailed out late last year by a fund linked with Saudi Arabia who took a ~10% stake in the company. Today, they (the Saudi fund) refused to inject more capital and the shares have collapsed.
Wealth Management is not the same as retail banking.
"The Wealth Management division offers comprehensive wealth management and investment solutions and tailored financing and advisory services to ultra- high-net-worth (UHNW) and high- net-worth (HNW) individuals and external asset managers"
How is that relevant? You said: "It does not have a significant retail presence." Meanwhile, CS does have a massive retail presence, in Switzerland, and has done for 150+ years.
My guess would be that that SNB's backstop and liquidity assistance is a way to bail them out before the inevitable collapse. It may make the medicine go down easier, as CS's collapse looks likely. Upon their demise, SNB can then say "well, great thing we had that backstop, huh!" rather than needing to find the political capital to get a bailout through.
I suspect it has more to do with accounting standards. After a certain % ownership you need to consolidate the entity in your group, which from a regulatory capital point of view means consolidating all of the RWAs while not getting credit for all the capital in the entity.
Many things. Many, many things. I have a pet theory that the primary thing that has been preventing the Ukraine conflict from expanding is precisely that all sides understand the economic gun pointed at all the participants, much moreso than the military situation. (I can't prove it and I won't even argue for it much; I'm calling it a "pet theory" after all. I don't even put a huge amount of stock in it myself.) The economic damage that could be done by each side is theoretically less than an all-out military assault, but in terms of cost/benefit, you get a somewhat similar result with a much smaller effort in the economic sphere right now.
It's a rather bizarre game theory situation. China in particular can easily trigger a huge crisis from what I can see. Selling off their treasuries more aggressively would do damage. They could also simply stop trading entirely unilaterally. Or both. And that's not even my complete list of things they could do to tip over the West as a whole.
However, it will hurt them as well. It becomes a super complicated analysis of the relative damage of the collapse, the probability that the current ruling classes can weather the damage, the assessment of the other side going nuclear, the true beliefs of the parties about relative military strength... I can tell you how the participants are publicly posturing and a certain amount of visible public jockeying on the issue (pay attention to the BRICS and their posturing and actions around non-dollar international currencies), but your guesses about the true internal beliefs of all the parties or the objectively real situation are as good as mine.
Note this is not unilateral. I think China's economy is dangerously precarious too, and the West could probably tip it over... but again, that would hurt the West as well, and all the previous paragraph applies in both directions.
(And note how I distinguish "posturing" vs. "actions" on the non-dollar currencies, because there are both things. And I also distinguish "internal beliefs" from "reality" because history shows that the two are often detached in decision maker's minds. One of the most dangerous situations for war historically is when at least one side's opinion is highly divergent from reality.)
That's the damage; reducing demand even more. Remember that when the United States Treasury is selling their treasuries, they're selling into the same market. Crashing demand leaves the Treasury unable to raise money. And then the second-order effect of this in a derivative-riddled market causes its own havoc.
Part of the reason they don't fire this gun is precisely that they'd lose out on a lot of value. But then, what do they do if the US signals strongly that it is going to go ahead and inflate the currency sharply, meaning they're only going to get a de facto big discount anyhow?
And I don't mean that as a simple question, where I'm implying a certain answer I'm trying to convince you of. You have to game this out like a game of chess, where this cascades out into a huge decision tree. The tree has gotten complicated lately. Taking economic damage to deal your enemy a bigger economic blow is getting disturbingly close to a rational move lately, in cold global realpolitik terms. Would China be willing to bet they could roil the US in enough domestic chaos that US leadership would become uninterested in stopping their incursion into Taiwan, even if it meant taking a hit themselves? I'm not saying the answer is "yes". I'm saying "the answer is a lot more complicated than it was a decade ago".
The key element you're missing in that analogy is that a lot of this failure and damage is going to occur anyhow. Economic fragility is baked into the cake. We're looking at a down cycle for everyone here. There's no option where we all hold hands together in happy harmony and the economy just keeps going up for everybody, or likely, we'd take it or some approximation of it. In this environment, weighing out whether you can cause proportionally more damage in your enemy's collapse by some action or other becomes distressingly rational.
Contemplate a payout matrix that looks like the Prisoner's Dilemma, except the payout for snitching while the other player doesn't is still negative, instead of zero. If that's your game theoretic situation, complaining that a player took an option with an expected negative payout is a null objection. There was no alternative. So the game changes.
This is part of why I say it's different than a decade ago. We did have some approximation of a hold-hands-and-be-happy option and we did take it. One can quibble about the details; I'm definitely on team "can was kicked down the road" rather than "everything was fixed, hooray", but hey, that's debatable.
The Chinese would hurt the US economy by a mass sell-off of Treasuries, but they'd be dropping a bomb into their own economy as well.
Alternatively, they could ramp-up to some sort of a localized/proxy hot conflict, and get their military-industrial base firing on all cylinders. It was WWII spending that pulled the US out of the depression.
The wikipedia article on war economy [1] says "War is often used as a last ditch effort to prevent deteriorating economic conditions or currency crises, particularly by expanding services and employment".
I find it difficult to believe that any sane nation-state would purposely bomb their own economy just to hurt an enemy, when a much better option exists economically (war footing).
Likely what China would do would be a combination of the two.
Still it's food for thought. Our economies are definitely intertwined, and there are levers that can be pulled.
The Saudi National Bank was not obligated to give Credit Suisse more money; that is not what I'm talking about. They are not obligated to send good money after bad. However, they were also not obligated to internationally announce that they in particular aren't giving them any more money. This is transparently obviously stupid; even without giving them more investment if they wanted to maximize the value of what was left, they shouldn't have said anything.
This is not the same magnitude by any means as China selling off treasuries, but it demonstrates what I'm talking about here, that it is becoming distressingly rational realpolitik to hurt yourself if it hurts someone else more. A BRICS ally taking a bit of damage (not even a lot necessarily, I mean, the expected value of that investment wasn't that high anyhow, but they just conclusively nuked it) in order to topple a Global Systemically Important Bank in the West might just suit them fine.
>However, they were also not obligated to internationally announce that they in particular aren't giving them any more money.
Hmm, I think you're reading into it way more than there was. The messaging from the Saudi NB was more 'We're not putting more money in because we're happy enough with the plan to turn CS around, and anyway.. we couldn't if we wanted to because...'
But that doesn't sell clicks, so the media turned it into a 'man bites dog' story to scream that the SNB was abandoning CS to its fate and it's all doomed.
>they shouldn't have said anything.
Yes in that situation keeping schtoom would have been the better thing to do, but not everybody can get it right every time.
However I doubt very much whether the SNB hoped to wound us evil people in the west as they seem to be mostly rational market participants hoping to make a long term bet on a Swiss bank.
The thing is that both China (during Mao's years) and Russia (during the shock therapy of the 1990s) have had to endure severe economic hardship, and even so, they didn't break. They won't break if the West decides to up the ante even more and if it decides to set up a total naval blockade against China, let's say.
On the other hand the most that the West had to endure when it comes to economic hardship since WW2 were a couple of really grim years in the late '40s, followed immediately after that by about three decades of sustained economic growth. Ideologically they're not set up for economic penury, neither their leaders, nor the Western populations themselves.
As such, this insistence that the West has on "let's hurt them (Russia and China) economically!" is in a fact a manifestation of its own insecurities.
A weak economy is less able to fund a strong military. If the country signals a desire to use their military for conquest, it seems relatively sound to sanction the country as a means to constrain it first and foremost. I don't think the primary goal need be anything more than "make military conquest more expensive" and e.g., less likely to succeed. It's not hard to imagine what Russia would be doing right now if its economy were 10x as strong as it is.
>both China (during Mao's years) and Russia (during the shock therapy of the 1990s) have had to endure severe economic hardship
Actually I would argue the exact opposite is true. Russia and China have never had it so good, why should they throw away
all the hard earned advantages they've gained just because some 3rd term teddy bear president tells them to?
Globalization means that China of today and China under Mao are not necessarily the same, and can't be viewed through the same lens. The internet is a Big Deal in terms of providing an outside perspective to willing Chinese looking to see what life is like outside of the Great (Fire)Wall. That said, you can't apply a western perspective when understanding China and the Chinese viewpoint. I spent some time over there and was constantly surprised by how the Chinese viewed themselves and their government and the world, in contrast to how I viewed the same.
It's clear that Russia is getting more and more adversarial, the question is where is the line where money matters less than ensuing pure global chaos. New oligarchs and billionaires will be made in a new world.
Rapid dedollarization and announcing a new currency (e.g. BRICS currency?) Gold purchases suggest some countries are preparing for the post-dollar world.
Why did you decide to do your comparison against that totally arbitrary point in time? Basically, anyone can play the game you're playing. Objectively, from its All Time High, BTC is down 70% - and has moved in lockstep with other over-valued meme stocks.
I rarely buy stocks or crypto but when there's bad news on banks I buy crypto and when people are crazy negative about something I tend to invest there too. For example when the airlines crashed during Covid in the US. It's a pretty simple strategy but I'm green most of the time :)
Banking systems need on average 10-15 years to crumble under the weight of their own corruption. Crypto can do it in 4, which seems like a fairly dramatic improvement in efficiency.
In the case of crypto, you might be confusing crumbling with weeding out. The long lived scams from traditional finance have a shorter shelf life there.
I think the "run" to bitcoin can be mostly attributed to people bailing on stablecoins as there's no guarantee they can be converted to dollars. If your stablecoin can't be cashed, but can be converted to BTC, then BTC looks better by comparison.
What's the point of converting BTC to dollars anything? I thought bitcoin was the future. I mean you don't see a lot of people fretting that we can't convert dollars to Zimbabwe bucks. Why are crypto people so hung up on convertibility to the fiat dollar?
My theory is that BTC and "the crypto space" are mostly about dollars. They use FOMO talk (future of finance) to disguise that they really just want to sell you garbage and collect USD.
I remember several years ago someone in finance posted here about how they were looking into ways BTC could be packaged into a traditional security that could be bought/sold in TradFi. After spending a year on it, he and his team came to two conclusions.
1) KYC made it really hard to do
and
2) everyone they talked to was more interested in getting USD than holding onto BTC
Point 2 stuck out to me. No one wants BTC. It's about get-rick-quick and cash out to USD.
That's why everyone talks about the price of BTC relative to dollars. It's all that really matters to them.
If my theory is correct, then the shuttering of the major on/off ramps between USD and BTC will force crypto into an endgame followed by a crash.
The endgame is probably when people need to raise capital because their business ventures in the real world are crashing and burning, and they actually take the available exits and drain the cash out of the system. Blocking offramps may actually do the ecosystem a favor (similar to coinbase always suspending withdrawals whenever crypto goes down).
We’re talking about future bitcoin world, not the past.
> Many truckers now can’t cash out their donated bitcoin due to financial sanctions, with some of the bitcoins being seized from NobodyCaribou by the authorities.
”What are you saying, that I can convert bitcoin to dollars with impunity?”
“No, Neo - I’m saying that when you’re ready, you won’t have to.”
If you want to say something's not possible, the fact that it happened in the past is something you have to reckon with. What changes in "future bitcoin world" prevent these seizures?
Expanded with details. If a fully functioning, sufficiently-decentralized crypto economy can be bootstrapped (meaning go to gas station, fill up your car, all with bitcoin), the government no longer has this ability.
There is no one on earth who can “freeze” a bitcoin wallet, and beyond that point it’s put up or shut up.
Spoiler alert: In the US, thanks to our second amendment, the government will shut up in such a situation.
Something I wonder is... With $1.3 trillion assets under management, is it safe to say that Crédit Suisse's situation has nothing to do with Bitcoin?
I'm asking because about 15 years after the last big financial crisis, one of the systemic bank risking default and potentially in need of a bail out reminds me of a headline from 2008:
"(The Times 03/Jan/2009) Chancellor on brink of second bailout for banks"
It isn't. Bitcoin isn't nearly big enough to cause systemic problems of banks, especially since most banks either don't have legal access to it, or because they don't see it as a valuable investment.
Please note that while Bitcoin is mostly built to counter central banking, it also heavily encroaches on the traditional yield generating business that banks serve to the people: storing wealth. With bitcoin, (excepting mining fees) you don't have to pay for storage or services. You don't run a counterparty risk, and you can keep a moderate level of privacy.
