March 15, 2023 - 1:00pm
The recent bailout of Silicon Valley Bank (SVB) depositors could prove highly controversial. That is, unless policymakers are convinced that it was necessary and the public are convinced that it is perfectly normal. But it was and is neither.
SVB went bust because of its investments. These were not particularly exotic — mostly Treasury bonds and mortgage-backed securities. Many banks carry similar investments today, but what was unusual were SVB’s depositors.
These were not people squirrelling away a few quid for their nest egg; nor were they Main Street mom and pop stores. Rather, they were some of the wealthiest people and most vibrant start-up investments in Silicon Valley.
These people held deposits at SVB far in excess of the $250,000 underwritten by the Federal Reserve. When SVB went under, the Fed had no obligation to bail these depositors out. They had responsibility for their deposits. They should have bought extra insurance or turned them over to a boring fund to manage them. But they did not. And when SVB collapsed, rather than realise their investment, they tapped the Fed to bail them out.
For days now, many have questioned why this was a reasonable thing to do. Some, like tech investor David Sacks speaking to UnHerd‘s Freddie Sayers, argue that if the bailout had not happened there would have been a wider bank run. But this is hard to prove: most people’s deposits are covered by the deposit insurance scheme.
No matter how powerful Silicon Valley’s media machine is, however, they are not fooling the finance community or the regulators. Veteran Wall Streeter Ken Griffin of Citadel gave an interview recently pointing out that the bailout meant that Silicon Valley was not playing by the rules of the capitalist game. He went so far as to say that the bailout was such a violation of those rules that capitalism is “breaking down before our eyes”.
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SubscribeThe techies have been hated for years now. We in the USA view them as the narcissistic sociopaths they are. SVB makes little difference and we aren’t surprised they were bailed out.
Yep, guilty as charged.
Yep, guilty as charged.
The techies have been hated for years now. We in the USA view them as the narcissistic sociopaths they are. SVB makes little difference and we aren’t surprised they were bailed out.
Apparently SVB gave $75m to the violent racist hate group Black Lives Matter, so fcuk them.
Apparently SVB gave $75m to the violent racist hate group Black Lives Matter, so fcuk them.
Totally agree. The depositors knew the insurance limit and the risks they were taking. Anyone with morethan $250K on deposit at a bank is hardly a novice investor.
We need to let badly run banks actually fail and those who are at fault suffer otrherwise nothing will change. From what I’m reading about the incestuous relationships between SVB, venture capitalists and some tech start-ups, I include the bank’s customers and large depositors amongst those “at fault”.
I’m writing this as someone who has worked in technology in a start-up and at Silicon Valley based companies.
Note: start-ups are meant to be high risk – and occasionally high reward – enterprises. Anyone working for a tech startup should know this. These are the last companies which need or deserve government protection or bail outs.
Further note: the tech companies I’ve worked for have been well run and led by – to the best of my knowledge – very decent people who I was proud to work for. But these weren’t the high profile “tech” companies you read about in the media.
Totally agree. The depositors knew the insurance limit and the risks they were taking. Anyone with morethan $250K on deposit at a bank is hardly a novice investor.
We need to let badly run banks actually fail and those who are at fault suffer otrherwise nothing will change. From what I’m reading about the incestuous relationships between SVB, venture capitalists and some tech start-ups, I include the bank’s customers and large depositors amongst those “at fault”.
I’m writing this as someone who has worked in technology in a start-up and at Silicon Valley based companies.
Note: start-ups are meant to be high risk – and occasionally high reward – enterprises. Anyone working for a tech startup should know this. These are the last companies which need or deserve government protection or bail outs.
Further note: the tech companies I’ve worked for have been well run and led by – to the best of my knowledge – very decent people who I was proud to work for. But these weren’t the high profile “tech” companies you read about in the media.
All the techies did was open a bank account and put their own money into it. These bank accounts pay salaries for staff.
I can understand why those who had equity/shareholdings in SVB should have everything at risk – or at gain – depending on how well the bank is run.
I don’t understand how the customers of the bank are, what, evil?
Bizarre perspective. It was the bank wot did it.
I think the implication is anyone with over $250k in a bank account is evil – which is the inverse mistake to assuming all working class or minority people have to be good – politics of resentment either way.
An interesting strawman.
“I think the implication is anyone with over $250k in a bank account is evil ”
Where is that implied?
LOL, hardly. Are you in VC or PE by chance? If so, please don’t let your investments put 10s of millions of dollars in a single bank account and then go crying to the government for a bailout after they participate in a bank run.
An interesting strawman.
“I think the implication is anyone with over $250k in a bank account is evil ”
Where is that implied?
LOL, hardly. Are you in VC or PE by chance? If so, please don’t let your investments put 10s of millions of dollars in a single bank account and then go crying to the government for a bailout after they participate in a bank run.
Huh? As a layman, if I open an account with a bank or other Fin organisation, and deposit over $250K into it, it is made very clear to me, that only the first $250K is insured by the FDIC. Nobody said anything about being evil, but here, once again, we have an exception made for the extremely rich tech elite (including many startup/VC companies that are made up of highly analytical and intelligent people that are well aware of the FDIC limit of deposit). This is nothing more than yet another wealth transfer from the low and middle class, to the highly wealthy. As flgrant as it gets.
It was the Venture Capital and Private Equity-funded Silicon bros who panicked and caused the bank run, then went crying to the government for a bailout. These are not ignorant people, FDIC limits are well known, Roku had $500 million in a single account for example. They deserved a haircut for their stupidity and recklessness, which would have been around 10%. VC bros can handle losing 10%.
I think the implication is anyone with over $250k in a bank account is evil – which is the inverse mistake to assuming all working class or minority people have to be good – politics of resentment either way.
Huh? As a layman, if I open an account with a bank or other Fin organisation, and deposit over $250K into it, it is made very clear to me, that only the first $250K is insured by the FDIC. Nobody said anything about being evil, but here, once again, we have an exception made for the extremely rich tech elite (including many startup/VC companies that are made up of highly analytical and intelligent people that are well aware of the FDIC limit of deposit). This is nothing more than yet another wealth transfer from the low and middle class, to the highly wealthy. As flgrant as it gets.
It was the Venture Capital and Private Equity-funded Silicon bros who panicked and caused the bank run, then went crying to the government for a bailout. These are not ignorant people, FDIC limits are well known, Roku had $500 million in a single account for example. They deserved a haircut for their stupidity and recklessness, which would have been around 10%. VC bros can handle losing 10%.
All the techies did was open a bank account and put their own money into it. These bank accounts pay salaries for staff.
I can understand why those who had equity/shareholdings in SVB should have everything at risk – or at gain – depending on how well the bank is run.
I don’t understand how the customers of the bank are, what, evil?
Bizarre perspective. It was the bank wot did it.
Selfishness and self-interest rule in Silicon Valley. Narcissism is seen as a virtue. These are not the stuff that sound investing or robust economies are built on.
Not true in my experience. Having spent a fair amount of time working there. Not all the companies behave in the way you assume and the attitudes there are generally far more liberal than in most of the US.
If you look at the economic history of Silicon Valley, I think you’ll find that it’s been one of the most successful regions in history and has sustained this position for over 60 years. There are many of the much older chip design related start-up companies where even admin staff became millionaires. To argue that this has not been successful for investors and is unsustainable ignores the facts.
I remember thinking that Silicon Valley was past its best 25 years ago. How wrong I was.
Not true in my experience. Having spent a fair amount of time working there. Not all the companies behave in the way you assume and the attitudes there are generally far more liberal than in most of the US.
If you look at the economic history of Silicon Valley, I think you’ll find that it’s been one of the most successful regions in history and has sustained this position for over 60 years. There are many of the much older chip design related start-up companies where even admin staff became millionaires. To argue that this has not been successful for investors and is unsustainable ignores the facts.
I remember thinking that Silicon Valley was past its best 25 years ago. How wrong I was.
Selfishness and self-interest rule in Silicon Valley. Narcissism is seen as a virtue. These are not the stuff that sound investing or robust economies are built on.
Just a question: If this bank did not have the words Silicon and Valley in its title, but was called something more anodyne, would we be so exercised? I don’t even know who holds accounts there: Are they simply modest businesses that wouldn’t be in a position to know how poor the Bank was with its risk assessment. as David Sacks maintains, or are they indeed rapacious techies?
I’m on the fence with this.
And I thought that ” Silicone valley” was just something in the middle of Stormy Daniels chest?
Stormy assured me that they were real.
Suckered again, I guess.
Still, at the end of the day, who cares
that well known political lobbyists firm T.I. Twank….
Greater fool 😉
that well known political lobbyists firm T.I. Twank….
Greater fool 😉
Stormy assured me that they were real.
Suckered again, I guess.
Still, at the end of the day, who cares
You think no one is exercised over the bailout of Credit Suisse?
This fence your on, is it the one between the bank building and its parking lot?
The depositors there who panicked and participated in a bank run a couple of Fridays ago are all funded by Venture Capital and Private Equity. So basically they are backed by the .0001% wealthiest individuals on the planet. They chose to deposit their VC/PE funds in a single bank account well above FDIC-insured limits, then panic and cause a bank run, and then have their VC/PE masters run crying to the taxpayers for a government bailout, which will put huge strain on US taxpayers and the US banking system.
And I thought that ” Silicone valley” was just something in the middle of Stormy Daniels chest?
You think no one is exercised over the bailout of Credit Suisse?
This fence your on, is it the one between the bank building and its parking lot?
The depositors there who panicked and participated in a bank run a couple of Fridays ago are all funded by Venture Capital and Private Equity. So basically they are backed by the .0001% wealthiest individuals on the planet. They chose to deposit their VC/PE funds in a single bank account well above FDIC-insured limits, then panic and cause a bank run, and then have their VC/PE masters run crying to the taxpayers for a government bailout, which will put huge strain on US taxpayers and the US banking system.
Just a question: If this bank did not have the words Silicon and Valley in its title, but was called something more anodyne, would we be so exercised? I don’t even know who holds accounts there: Are they simply modest businesses that wouldn’t be in a position to know how poor the Bank was with its risk assessment. as David Sacks maintains, or are they indeed rapacious techies?
I’m on the fence with this.
“It seems unlikely that the techies are going to get away with this one.”
” …investment bankers became public enemy number one.”
“This time, it may well be the techies who occupy this unenviable position.”
Really? And what ill befell those rich investment bankers who became public enemy number one? Nowt. Nothing. Nada. Not a thing. They went on piling up their riches ever since.
And that is exactly what’s going to happen to the Techies this time.
Privatisation of the profits, socialisation of the losses. Bent, crony capitalism has been with us since 2007 and is still with us now. In fact, toady, it’s even more blatant.
.
“It seems unlikely that the techies are going to get away with this one.”
” …investment bankers became public enemy number one.”
“This time, it may well be the techies who occupy this unenviable position.”
Really? And what ill befell those rich investment bankers who became public enemy number one? Nowt. Nothing. Nada. Not a thing. They went on piling up their riches ever since.
And that is exactly what’s going to happen to the Techies this time.
Privatisation of the profits, socialisation of the losses. Bent, crony capitalism has been with us since 2007 and is still with us now. In fact, toady, it’s even more blatant.
.
Techies deserve all the opprobrium that is coming to them, and more.
However we should be putting up statues to the bankers have kept this country afloat for much of the last 30 years.
In 1980, British manufacturing made up around 23 per cent of GDP. By 2010 it had bottomed out at around 10 per cent. Because the country ceased to produce goods on a meaningful scale, it began to run ever-increasing trade deficits. In the first half of the 1980s, Britain ran an average current account surplus of around 1.3 per cent of GDP. By the 1990s this had deteriorated into an average current account deficit of around 1.4 per cent of GDP. By the 2010s things had deteriorated further still with Britain registering an average current account deficit of 3.7 per cent of GDP. In the first quarter of 2022 the current account deficit hit a record 7.1 per cent of GDP. How has Britain been able to afford this?
The answer is the City of London. By 2021, we had a financial services sector the same size as that of the United States. In 2021, Britain exported £61.3bn worth of financial services and imported only £16.6bn, a trade surplus in financial services of £44.7bn.
When a country imports more than it exports, this results in the rest of the world holding an excess of that nation’s currency. In the case of Britain that means an excess of sterling. The country that holds this excess has three choices: it can hold onto the currency as reserves; it can recycle the currency back into the deficit country’s financial markets; or it can sell the currency in the foreign exchange markets. The first two options mean that the currency in question retains its value; the third means that it declines in value.
Britain gets away with running trade deficits because its trade partners are keen to hold British-domiciled financial assets. This in turn allows Britons to live beyond their means. Foreigners send Britain goods they would otherwise be unable to afford, Britain sends sterling in return and instead of dumping sterling onto foreign exchange markets — thereby driving down its value and rendering the goods less affordable for Britons — the foreigners buy British financial assets. Britain is a potentially rather low-income country living the life of a high-income country, and the whole show is kept on the road by the financiers in the City.
No bankers, no welfare state, no NHS
Techies deserve all the opprobrium that is coming to them, and more.
However we should be putting up statues to the bankers have kept this country afloat for much of the last 30 years.
In 1980, British manufacturing made up around 23 per cent of GDP. By 2010 it had bottomed out at around 10 per cent. Because the country ceased to produce goods on a meaningful scale, it began to run ever-increasing trade deficits. In the first half of the 1980s, Britain ran an average current account surplus of around 1.3 per cent of GDP. By the 1990s this had deteriorated into an average current account deficit of around 1.4 per cent of GDP. By the 2010s things had deteriorated further still with Britain registering an average current account deficit of 3.7 per cent of GDP. In the first quarter of 2022 the current account deficit hit a record 7.1 per cent of GDP. How has Britain been able to afford this?
The answer is the City of London. By 2021, we had a financial services sector the same size as that of the United States. In 2021, Britain exported £61.3bn worth of financial services and imported only £16.6bn, a trade surplus in financial services of £44.7bn.
When a country imports more than it exports, this results in the rest of the world holding an excess of that nation’s currency. In the case of Britain that means an excess of sterling. The country that holds this excess has three choices: it can hold onto the currency as reserves; it can recycle the currency back into the deficit country’s financial markets; or it can sell the currency in the foreign exchange markets. The first two options mean that the currency in question retains its value; the third means that it declines in value.
Britain gets away with running trade deficits because its trade partners are keen to hold British-domiciled financial assets. This in turn allows Britons to live beyond their means. Foreigners send Britain goods they would otherwise be unable to afford, Britain sends sterling in return and instead of dumping sterling onto foreign exchange markets — thereby driving down its value and rendering the goods less affordable for Britons — the foreigners buy British financial assets. Britain is a potentially rather low-income country living the life of a high-income country, and the whole show is kept on the road by the financiers in the City.
No bankers, no welfare state, no NHS
The idea that deposit insurance caps achieve much is a classic example of the gap between theory and practice. There are such obvious and large hard cases that politicians can rarely enforce them. Sheila Barr is being disingenuous. What about the widow who has just received $500,000 on selling her house (hardly a large sum in California) or the company with 100 employees that has a payroll of $500,000 per month or … Should every company with a turnover of more than $5 million be forced to spend endless time switching money between multiple bank accounts?
The practical costs of taking low deposit insurance limits seriously would be a huge burden on the economy. Neither companies or households have the time or knowledge to do that. The obvious solution is to treat it as proper paid insurance – such as $1 or $10 or $100 per month for each $100,000 that the maximum balance in a month exceeds whatever is the nominal limit. Mandate that banks must offer and reinsure such insurance. That will very rapidly force them either to take liquidity seriously or lose their deposits.
The underlying problem is that the management of SVB and many other banks were/are just rotten bankers. The “corruption” in the system is to allow and even encourage incompetent fools to thrive.
The idea that deposit insurance caps achieve much is a classic example of the gap between theory and practice. There are such obvious and large hard cases that politicians can rarely enforce them. Sheila Barr is being disingenuous. What about the widow who has just received $500,000 on selling her house (hardly a large sum in California) or the company with 100 employees that has a payroll of $500,000 per month or … Should every company with a turnover of more than $5 million be forced to spend endless time switching money between multiple bank accounts?
The practical costs of taking low deposit insurance limits seriously would be a huge burden on the economy. Neither companies or households have the time or knowledge to do that. The obvious solution is to treat it as proper paid insurance – such as $1 or $10 or $100 per month for each $100,000 that the maximum balance in a month exceeds whatever is the nominal limit. Mandate that banks must offer and reinsure such insurance. That will very rapidly force them either to take liquidity seriously or lose their deposits.
The underlying problem is that the management of SVB and many other banks were/are just rotten bankers. The “corruption” in the system is to allow and even encourage incompetent fools to thrive.
Yes, but… Even if techies were to replace bankers at the receiving end of the scorn of society, what change would that bring about? Have there been any substantial changes in the banking and finantial systems after 2008?
Revolution is the locomotive of history
“…Techies are replacing bankers as public enemy number one…”
Ok, you got me, bang to rights! I dunnit guv, I bought daan SVB!
Whennza the public comin’ raand then, to cart me off to the Tower?
Politicians are actually public enemy no 1!
“Anti-racists” and trans activists are public enemy number 1.
and cowardly politicians
and cowardly politicians
“Anti-racists” and trans activists are public enemy number 1.
You mean guillotine
Well I accept writing code in a language as barbaric as bash is criminal, but the guillotine seems a bit excessive.
Well I accept writing code in a language as barbaric as bash is criminal, but the guillotine seems a bit excessive.
Politicians are actually public enemy no 1!
You mean guillotine
“…Techies are replacing bankers as public enemy number one…”
Ok, you got me, bang to rights! I dunnit guv, I bought daan SVB!
Whennza the public comin’ raand then, to cart me off to the Tower?