John Naughton: The SVB debacle has exposed the hypocrisy of Silicon Valley

Old_Joe

US tech innovators have a culture of regarding government as an innovation-blocking nuisance. But when Silicon Valley Bank collapsed, investors screamed for state protection

So one day Silicon Valley Bank (SVB) was a bank, and then the next day it was a smoking hulk that looked as though it might bring down a whole segment of the US banking sector. The US government, which is widely regarded by the denizens of Silicon Valley as a lumbering, obsolescent colossus, then magically turned on a dime, ensuring that no depositors would lose even a cent.

The first thing to understand is that “Silicon Valley” is actually a reality-distortion field inhabited by people who inhale their own fumes and believe they’re living through Renaissance 2.0, with Palo Alto as the new Florence. The prevailing religion is founder worship, and its elders live on Sand Hill Road and are called venture capitalists. These elders decide who is to be elevated to the privileged caste of “founders”.

To achieve this status it is necessary to a) be male; b) have a Big Idea for disrupting something; and c) never have knowingly worn a suit and tie. Once admitted to the priesthood, the elders arrange for a large tipper-truck loaded with $100 bills to arrive at the new member’s door and cover his driveway with cash.

But this presents the new founder with a problem: where to store the loot while he is getting on with the business of disruption? Enter stage left one Gregory Becker, CEO of SVB and famous in the valley for being worshipful of founders and slavishly attentive to their needs.

So SVB was awash with money. But, as programmers say, that was a bug not a feature. Traditionally, as Bloomberg’s Matt Levine points out, “the way a bank works is that it takes deposits from people who have money, and makes loans to people who need money”. SVB’s problem was that mostly its customers didn’t need loans. So the bank had all this customer cash and needed to do something with it. Its solution was to buy long-dated, ostensibly safe securities like Treasury bonds. So 75% of SVB’s debt portfolio was in those “held to maturity” assets. On average, other banks with at least $1bn in assets classified only 6% of their debt in this category at the end of 2022.

There was, however, one fly in this ointment– the US Federal Reserve had been raising interest rates to combat inflation. Word got out – as word always does – and the elders on Sand Hill Road began to whisper to their esteemed founder proteges that they should pull their deposits out, and the next day they obediently withdrew $42bn. The rest, as they say, is recent history.

What can we infer about the culture of Silicon Valley from this shambles? Well, first up is its pervasive hypocrisy. Palo Alto is the centre of a microculture that regards the state as an innovation-blocking nuisance. But the minute the security of bank deposits greater than the $250,000 limit was in doubt, the screams for state protection were deafening. (In the end, the deposits were protected – by a state agency.) And when people started wondering why SVB wasn’t subjected to the “stress testing” imposed on big banks after the 2008 crash, we discovered that some of the most prominent lobbyists against such measures being applied to SVB-size institutions included that company’s own executives. What came to mind at that point was Samuel Johnson’s observation that “the loudest yelps for liberty” were invariably heard from the drivers of slaves.

But the most striking takeaway of all was the evidence produced by the crisis of the arrant stupidity of some of those involved. The venture capitalists whose whispered advice to their proteges triggered the fatal run must have known what the consequences would be.

The above is edited excerpts from a current opinion article in The Guardian. Hard not to share Mr. Naughton's opinion.

Baseball_Fan

So ya, interesting how you see guys like Ritholtz talk about "The Libetarians" etc now wanting back stopping from the Fed etc for their unisured deposits...other articles interjecting a smoke show how now the Wealthy are crying for help to save their deposits.

Anyone with half a rational thought knows that the overwhelming majority of depositors at SVB and FRC are overwhelmingly lefty Biden supporters. No mention of that anwhere though, no?

Meanwhile you need to ask what the hell was Mary Daly doing or better said not doing overseeing this, oh she was focused on inclusion, diversity blah blah blah...virtue signaling BS. How about focusing on merit, competence instead?

Root cause, no mention how Bidenomics has been the root cause of all this. Insane economic, fiscal, monetary policies caused inflation, caused the Fed to hike....and what da know, the peanut butter is hitting the fan. But hey, let's send another 100B to Ukraine and keep the killing fields operative rather than forcing a peaceful resolution.

So I guess you could argue this was a bail out of Biden supporters.

That being said, I do believe and agree with Hussman as he said all along since 08 they should protect all depositors and the shareholders get wiped out and bond holders get a crew cut, bank goes into receivership and taken over by stronger bank. What did the depositors do wrong here? I'll answer that for you. Nothing. Why should they get wiped out, jsut because they have a bigger uh, nest egg than some, so little boys are jealous now?

You need to do what is right for the country and most. If they don't stop the bank runs EVERYBODY is going to take it in the shorts. Cowns are trying to bring politics into play now rather than figuring out what caused this, how was this missed, how did they get a good ratings from Moody's and the auditors, how do we stop the bank runs, how do we have a better system going forward.

I can also tell you first hand, thank GOD for Silicon Valley and the innovation...as someone who has spent a lot of time there I can tell you a lot of medical advances, semiconductor advances, bio tech advances have come about and made our society better for it due to the entrepenourial climate out there without the loads of excessive govt intervention. For more curent times, I have no use for Meta and their virtual reality BS, that I would agree with.

Baseball Fan

Old_Joe

"Anyone with half a rational thought knows that the overwhelming majority of depositors at SVB and FRC are overwhelmingly lefty Biden supporters"

And we "know that" exactly how?

Old_Joe

"let's send another 100B to Ukraine and keep the killing fields operative rather than forcing a peaceful resolution."

aka: Let's force Ukraine to surrender to Russia... Peace in Our Time !!!

Evidently Baseball Fan isn't familiar with the warmup to the Second World War.

Might makes Right! Sure thing, Neville.

Old_Joe

"I can also tell you first hand, thank GOD for Silicon Valley"

Would that be the same "GOD" that watches over every sparrow?
Who has determined that Russia should mercilessly destroy the people of Ukraine?
Who delights in religions trying to kill each other in "his name"?

Maybe we need a better class of "GOD". The one that you're using must have been a factory reject.

Observant1

Authorities were concerned about the ramifications of potentially widespread runs on banks.
If U.S. depositors lost confidence in the banking system, the situation could have easily spun out of control.
Protecting depositors with over $250K in SVB and Signature Bank may have been necessary in this context¹.

Surprisingly, several prominent capitalists (David Sacks, Bill Ackman, etc.) who previously espoused libertarian ideals suddenly had a change of heart!
They utilized social media to warn of impending doom and demand a bail out by government agencies.
These hypocrites helped accelerate the run on SVB ($42B was withdrawn last Thursday).



¹ It may be prudent to modify FDIC insurance protection and scrutinize regulations for banks which aren't TBTF.

Old_Joe

By Chris Sununu:
Some of my GOP colleagues have lost their moral compass on Ukraine

“America First” does not mean “America Only.” It means putting our interests first — and that’s what opposing Russia in Ukraine does.

The Russian invasion of Ukraine is not a “territorial dispute,” as Florida Gov. Ron DeSantis described it this month. Russia is engaged in a war against an innocent people, and it must be condemned. To abandon Ukraine would set off a negative chain of events for U.S. interests domestically and abroad. Vladimir Putin is knocking at NATO’s doorstep, and without our support — and the support of our European allies — Ukraine will fall, resulting in far graver problems for the United States: conflict across Europe.

History has taught us that complacency and appeasement benefit our enemies much more than they benefit the United States. Some in the Republican Party have lost their moral compass on foreign policy, as evidenced by former president Donald Trump, who called Putin’s invasion “genius” and “savvy.” As Republicans, we should support freedom, not abandon it.

U.S. resolve is being tested, and Xi Jinping is watching. It is easy to see what happens next: Russia and China get stronger; the United States gets weaker. China, emboldened, sees an opening in Taiwan, conflict cascades, and the United States faces an existential threat.

The idea that our support of Ukraine is creating a partnership between China and Russia is a straw man. China and Russia have colluded against U.S. interests for over a decade, and this war has weakened Russia. Unfortunately, Putin is now hearing future leaders of the United States speak with a lack of commitment against such aggression.

As Reagan said, resolve is the United States’ most powerful tool in worldwide conflicts. We need to show it. Our hopeful vision for the world must be aspirational and ambitious, not apathetic and indifferent.

The above section contains excerpts from an article by Mr. Sununu, which were edited for brevity. (Textual emphasis was added.)

LewisBraham

Just a heads up that there is a fair amount of finger wagging from the usual sources where I suspect Baseball gets his info that SVB is a "woke bank" and that's why it failed. Apparently, the bank made a few loans to ESG concerns and celebrated gay pride day and that somehow is responsible for its failure in the minds of dim bulbs and opportunists like Josh Hawley:

https://nytimes.com/2023/03/14/us/politics/bank-collapse-train-derailment.html

https://nytimes.com/2023/03/15/us/politics/silicon-valley-bank-collapse-woke-fact-check.html

It's pretty nuts.

Junkster

Old_Joe said:

By Chris Sununu:
Some of my GOP colleagues have lost their moral compass on Ukraine

“America First” does not mean “America Only.” It means putting our interests first — and that’s what opposing Russia in Ukraine does.

The Russian invasion of Ukraine is not a “territorial dispute,” as Florida Gov. Ron DeSantis described it this month. Russia is engaged in a war against an innocent people, and it must be condemned. To abandon Ukraine would set off a negative chain of events for U.S. interests domestically and abroad. Vladimir Putin is knocking at NATO’s doorstep, and without our support — and the support of our European allies — Ukraine will fall, resulting in far graver problems for the United States: conflict across Europe.

History has taught us that complacency and appeasement benefit our enemies much more than they benefit the United States. Some in the Republican Party have lost their moral compass on foreign policy, as evidenced by former president Donald Trump, who called Putin’s invasion “genius” and “savvy.” As Republicans, we should support freedom, not abandon it.

U.S. resolve is being tested, and Xi Jinping is watching. It is easy to see what happens next: Russia and China get stronger; the United States gets weaker. China, emboldened, sees an opening in Taiwan, conflict cascades, and the United States faces an existential threat.

The idea that our support of Ukraine is creating a partnership between China and Russia is a straw man. China and Russia have colluded against U.S. interests for over a decade, and this war has weakened Russia. Unfortunately, Putin is now hearing future leaders of the United States speak with a lack of commitment against such aggression.

As Reagan said, resolve is the United States’ most powerful tool in worldwide conflicts. We need to show it. Our hopeful vision for the world must be aspirational and ambitious, not apathetic and indifferent.

The above section contains excerpts from an article by Mr. Sununu, which were edited for brevity. (Textual emphasis was added.)

As a long time Republican ( but dislike Trump far more than even the most ardent Democrats) I agree completely with Sununu. What has happened to my GOP? Back in the days - like when I was much younger - it would have been every Republican alive supporting our aid to Ukraine. But what do I know? I was one of the few in my Catholic high school actively campaigning for Barry Goldwater. You see he was running against a Catholic and Catholics had to stick together in their support of JFK. Instead we got the most futile and fatal war of my lifetime that tore our country apart as Goldwater lost in a landslide. Camelot my a..

Old_Joe

@Junkster- I saw an extended interview with John Sununu some days ago on the PBS Newshour. I liked what I saw- he seems like a perfectly reasonable person. He might get my vote, if it came down to it.

AndyJ

Old_Joe said:

"let's send another 100B to Ukraine and keep the killing fields operative rather than forcing a peaceful resolution."

aka: Let's force Ukraine to surrender to Russia... Peace in Our Time !!!

Evidently Baseball Fan isn't familiar with the warmup to the Second World War.

Might makes Right! Sure thing, Neville.

+1,000.

catch22

@Baseball_Fan

Peter Thiel....Thiel is a self-described conservative libertarian, though more recently he has espoused support for national conservatism, and criticized economically liberal attitudes towards free trade and big tech. Reported that he 'had' $50 million at SVB.

You wrote: Anyone with half a rational thought knows that the overwhelming majority of depositors at SVB and FRC are overwhelmingly lefty Biden supporters

Have you a list? You must have one or can direct a link my way. I'm having a discussion with a neighbor; and would appreciate your help with a list of the major depositors.
Thank you.
Catch

Mark

We should all have learned by now that @Baseball_Fan never feels the need to back up the garbage he spews with actual and truthful facts or references. He lays on his back barfing at the ceiling expecting it all to stick up there. Then after a day or two he returns to proclaim that what he said is not what he meant. I had a neighbor like that who finally, after considerable pleading, returned to taking the meds his care doctors prescribed.

sma3

@Old_Joe

Guess we should move this treat to "Off Topic" (again)

I assume people claiming SVB is "woke" get most or all of their information from Fox news, which has also promulgated the lie that SVB sent millions to BLM

Anyone interested in the facts should read Judd at Popular Information

https://popular.info/p/silicon-valley-bank-donated-zero

Judd continues to back up his opinions with facts

Old_Joe

@sma3-

How ironic: We give @Baseball_Fan the power to control our viewing by tolerating his Trumpian rants, which then obliges us to remove a topic from general viewing to the all-but-invisible "Off-Topic" section.

Right out of the right-wing playbook: censor what you don't like.