Banking has been around for a long time, but it s still not good enough. Is there a way to fix it? Is it a government problem? Or is it a problem that can be fixed by a government solution?
00:05:11.360Well, I don't think that having limits is...
00:05:16.060I've seen some really bad takes, and it goes like this.
00:05:20.560If you don't have a $250,000 limit that's really a strict limit and you really stick to it and you never change it, it will incentivize bad behavior.
00:05:31.140So, let's take this example with Silicon Valley Bank.
00:05:35.900Let's say the Silicon Valley bankers who made the mistakes, let's say that they were aware there was a good chance that even the $250,000 would be guaranteed beyond that if something went wrong.
00:05:49.420So, under those conditions, if those leaders, and especially the risk management person...
00:05:55.900So, would the risk management person say to themselves, well, I thought I was evaluating the risk properly, but, you know, all those depositors would be protected.
00:06:38.260I actually saw, like an actual adult, say that the executives would be disincentivized by what happens with the depositors, as if they would not be disincentivized by losing all of their own money.
00:06:57.800You don't think that the risk of losing everything?
00:07:00.800That's what happened to the executives.
00:07:03.220I mean, they made some money before they lost their jobs.
00:07:06.560But do you think anybody in the real world who's an executive is thinking to themselves, well, yes, this will definitely destroy my life, but what I really care about is that $250,000 limit.
00:07:20.120And I think the government will protect a little bit more, because I did that one time.
00:07:24.180So I'm going to change everything I'm doing because of the depositors, not about my entire life being on the line.
00:07:33.360Now, changing the amount that's protected for depositors will make no difference to anybody's decision-making, because they don't give a shit.
00:07:46.120The whole problem is that the executives didn't care about the depositors.
00:08:09.160And to watch actual adults in the real world in 2023 get up there and imagine that those executives would have acted differently if the $250,000 had been a bigger number.
00:09:00.460The other thing we learned about Silicon Valley Bank is that the speed of mass hysterias in general, you know, I'll call a bank run a mass hysteria because you're causing the problem by thinking it's a problem.
00:09:12.700It's a little different than a mass hysteria, but you can see the parallels.
00:09:15.940So now anything that could have been a mass hysteria before becomes one almost instantly because of the speed of communication.
00:09:38.920Zuckerberg at Facebook, he's cutting 11,000, I guess 11,000 people got cut in November, another 10,000 being cut.
00:09:48.260Do you say to yourself, uh-oh, how could Facebook possibly continue as a company if they get rid of one out of four employees, which is what it will be when they do this latest round?
00:10:00.880They will have lost one out of four employees.
00:10:19.560You know, a lot of people working on, you know, the next big thing that doesn't work out.
00:10:24.220Somebody else is also working on the next big thing.
00:10:26.460So it's a whole bunch of people who are working on stuff that's not the core business because they can make an argument for it and because the budget allowed it.
00:10:36.640So here's my parallel to that, my first Dilbert experience, kind of.
00:10:42.800When I left the phone company, I'm sorry, when I left the bank and went to the phone company, the local phone company,
00:10:48.880it wasn't long after the divestiture from where all the phone companies were owned by AT&T.
00:10:54.520So once the individual phone companies were created, they got some allocation of capital from what had been the master entity that was very profitable.
00:11:05.120So it turns out that the company I worked for had big piles of money coming in just because of the divestiture and had nothing to do with their business.
00:11:15.940It was just vast piles of capital that we had to employ.
00:11:18.560How many of the things that we spent that money on were necessary, do you think?
00:11:24.200Because we realized early on that whatever we established as our budget for the group I was working in,
00:11:31.840it probably would be sort of the good starting point.
00:11:34.320So after that capital started trickling out, because it wouldn't last forever, we'd have a large budget,
00:11:40.600and then we'd be able to say, hey, we'd better keep having this large budget.
00:11:44.300You might have to cut some other things, but look at all these things we're doing.
00:11:48.060So people were fighting to spend the most budget, because that was their best interest.