Silicon Valley Bank seized by officials after imploding: How this happened and why Silicon Valley Bank (SVB) was shut down on Friday by the California Department of Financial Protection and Innovation because it ran out of money. The state financial watchdog, citing the bank's "inadequate liquidity and insolvency," turned the VC finance house over to the Federal Deposit Insurance Corporation (FDIC), which is …
It's very simple. The Federal Gummint has been overspending by many trillions of dollars in the past two years. This is the root cause of the problem. This has caused spiraling inflation that has devastated many families (just look at the price of food and electricity). According to Bloomberg, to combat this inflation the Federal Gummint has finally been forced to raise interest rates. Startup companies, who liked having access to cheap capital at low interest rates, are now no longer borrowing and are forced to withdraw operating capital from their savings, and many of these companies bank at SVB. Risk-averse VCs who liked SVB in the past suddenly advised their portfolio to withdraw their money from SVB.
These withdrawals have been so massive that the bank has been unable to stay viable. Let's hope this is the only major bank affected.
True but only up to a point.
The Feds have been overspending for years. Every child now born in the USA already has debt. That is the legacy of letting the very rich write the rules. Sooner or later the bill has to come in. It is about to get worse too, thanks to the USA's economic war against China. China has money in the bank, the USA has debt.
I keep trying to explain this same point to people, as long as the debt is structured this way, which is true right now and likely will continue for at least a few more years, the USA essentially rules the world and doesn't really have that debt on its balance sheet in the way most people think it does. Most people seem to prefer worrying that it's actual debt. That doesn't mean the structure will continue to work in our favor, and there are absolutely inflation effects from spending that isn't productive. But this inflation is more than half caused by us losing the just in time inventory methods (our still-accordioning supply chains) and the biggest war Europe has seen in a long time leading to a complete reshuffling of the energy markets. Anyone who says it's primarily driven by gummint spending is delusional.
and the biggest war Europe has seen in a long time
IS
primarily driven by gummint spending
you don't seriously think that Biden gives a rat's ass about Ukrainians ? The problem is, they got their enemy wrong, which is a fatal mistake and is backfiring now.
Gummint. heh. like a meme. Roger Hedgecock was the first person to coin this term I think. I've been using it for decades.
In essence, it takes a government to "gum things up" and of course it sounds kinda "red-neck" to pronounce it that way.
(You know you're a redneck when ... [fill in the blank] - Jeff Foxworthy jokes)
Glad to see the term in use.
Why do you single out "the last two years"? The federal govt has been running up the deficit much longer than that.
No administration in my lifetime has made the slightest effort to cut federal spending. The big difference between the parties is that Dems generally think taxes should be higher, whereas Repubs generally think they should just pass the debt on to their kids.
Your point about Fed spending causing interest rates is wrong. Although I very much agree the SVB failure is the shakeout from interest rates.
First off, whatever your view on inflation, 4% interest rates are not “wrong” or an aberration. It’s 0% which was both an aberration and deeply destructive. 4% is the global average over the past *millennium*, since even before interest rates were decided by governments or central banks. It’s *necessary* to get a return on capital, because otherwise the money just goes to speculation and gambling. Here today: crypto and zombie corps. No *profitable* company needs 0%, if their internal rate of return is the minimum 10-15% it should be. As soon as you think about it, it makes no sense. Nor no *genuine* startup, if a realistic experience assessment indicates a 10% chance of 20x value growth (which is not a high bar by the way).
Every single company that is in trouble at 4% should have been let to die. It would have been replaced by another company that has someone with a brain at the helm. 0% benefits only nepo babies in charge of companies that they don’t have the skill to lead (in the US that’s the traditional sort, Milo Carnegie III; in the EU that’s family connections to the Commission).
Second, it’s a misunderstanding to think Fed spending is debt. It isn’t. Central bank *printing* is simply an expression of global appetite for the currency. For the past half-century, the US is a unique global hyperpower, and contains 50% of the worlds investable assets ( the US is uniquely financialised, in most other countries a large portion of assets can’t be bought by a public investor). The result is quite simply - everyone wants dollars, because they want a share of the US economy. Love’em or loathe them, *with their own money*, everyone wants dollars. Fed print isn’t inflationary per se, it’s an expression of global desire for a share in the centre of the financial universe. And the Fed Gov can (and should) spend the incoming wave of money on their own population. At some point, the US will stop being the centre of the universe. All empires come to an end. It might be ten years or fifty. All it takes is a couple of stupid isolationist Presidents, and it’s the end of the ride. The whole thing will come crashing down, and then it will be massive debt whether it’s 5 trillion or 50 trillion doesn’t matter. Take the money, and spend it on growing real value.
And is pretty much how all these tech start-ups appear.
The entire system of funding and crucially valuing this sector is utterly broken.
You only have to look at the valuations of the likes of Uber, Meta and so on to realise that. Even before they were massive the stock was ridiculously over valued, mainly so that those spewing money in as seed funding could make a huge profit. It is a vicious cycle that has to break at some point.
I have some fairly competent people working on financing, and for a number of reasons we kept far away from US investors and VCs. That emerged to be a good move because when we started investigating why so many EU companies were being bought up by US outfits we discovered most of these buys were leveraged (i.e. using a company value to borrow against) and thus represented in principle a chain of problems if even the slightest thing went wrong. But that's how these people gamble, in the hope of flogging the whole chain as a going concern before any of those links in the chain fails and the whole assembly dies a horrible death, zapping many jobs in the process. Because by then they will have had their bonus..
“ Fed print isn’t inflationary per se”
I understand that as the global reserve currency the US is able to buy things with paper. I would like yours or anyones take on where inflation is coming from.
My elec cost went up 44% from last year. They say generation cost went up 42%. This is a co-op so any profit is returned to the customers. Was it bad investments? Can’t be greed due to the business model. Was it ESG investments? Not according to their p&l.
I think if we can go back to what energy cost us 2 years ago, inflation will turn around. What caused it? Find that and we might solve it. The Ukraine war started after the jump in energy prices. The way the feds (please note, the fed is a group of banks not the gov) are destroying the economy to bring inflation down and force the retired back into the workforce is wrong.
0% ? Freaking morons.
Oh, by the way. If you have more than $250k in ALL the accounts in a bank, it is gone if they close it. Most assume it is per account. Read the fine print.
I worked for a bank for years. There is very little cash stored there. If you are thinking of getting cash, best be there when they open tomorrow.
My take on inflation is largely that efficiencies of production broke during the pandemic, but we pay ourselves the same in nominal. Savings, in whatever form, are claim on our future selves by our past selves. When we originally put the £1000 aside, that was enough resources to buy the nice holiday, but at new lower productivity it no longer is. Same amount of savings matched with less production outcomes = higher prices. That isn’t about fiat currency per se, it would be just as true if we were on a gold standard. Same number of grams of gold chasing fewer tomatoes
Lower production efficiency. JIT production and logistics broke, but it’s not just that. It’s fairly obvious that there is an aggressive flatness of mood amongst the majority of workers, Great Resignation, Quiet Quitting etc. Organisation processes that used to work, because workers went above and beyond to make it so, now just don’t. People just let stuff fail, because they’ve had enough. That’s everyone from GPs to restaurant staff. And now we produce 10% less outcome as a group, our salary must buy 10% less, so we’re also unhappy about being underpaid and even less inclined to stay until 10pm to fix it.
"Fed print isn’t inflationary per se, it’s an expression of global desire for a share in the centre of the financial universe. "
As a professional economist I can confidently say that is the biggest load of utter horse manure I have read in years.
Some “professional economists” are monetarists. Those economists are wrong.
Among other points, the “householder fallacy”, that there is a fixed amount of money in the economy (whether M0, M1 or whatever) is just vague handwaving by people who write equations in economics papers, while having no maths education at all. It takes no account of the velocity of money, which is what money *is*: a medium of exchange.
If we’re going to do “argument from authority”, that’s me speaking with a PhD in theoretical physics. You know the Black-Scholes equation, that won a Nobel Prize for economics in 1997? Well, every physics undergrad student kills themselves laughing when it is written down for them with reverence as a seminal contribution by economists. Because it’s trivially recognisable as the heat diffusion equation, discovered by Fourier in the 18th century. And any decent undergrad should be able to write down the three key mathematical assumptions on which it’s based, and knows that every one of those assumptions are trivially violated in this application. It’s cargo cult maths, copy-pasta by those who don’t know any maths.
Now, are these really the questions I was called here to answer? Phone calls and foot lockers? Please tell me that you have something more, Lieutenant. These two Marines are on trial for their lives. Please tell me their lawyer hasn't pinned their hopes to a phone bill.
Edit: Occurred to me - every time I made an investment decision, to the extent that I generate alpha, I’m competing zero-sum against not just *one* but *dozens* of professional economists. Turns out, I’m ahead, over forty years of investing. A lot. I’ve never had a loss making year, nor less than +5% over global market index. So, I guess maybe there’s stuff I know you don’t.
Not two years -- more like 20 years. Or more.
The Federal deficit was an issue back in the 1994 election when Bill Clinton was elected. Clinton did manage to bring the current account into surplus by the end of the 90s and there was even talk of gradually retiring the debt but there was a change in government and lots of good reasons to dole out tax cuts. The loosening of banking regulations coupled with the absence of oversight led to a lending boom in the 2000s which resulted in the 2008 crash. Recovery was only possible by the Fed printing a boat load of money to stablize things. Come the next change of government its back to tax cuts (unfunded) and even more red ink.
Throw in an unfunded war or two, a military budget that doesn't pass -- and has never successfully passed -- an audit with out of control spending on arms (the US spends more on defense than the next seven countries combined) and the question is really "Why haven't we collapsed yet?". (The answer is simple -- the US$ is the global reserve currency so we get everyone else to cover the debt.....)(Shhhh!!! Don't tell anyone!)
A big part of the beef we have with countries like Russia and China is that they are solvent but they're not playing our financial game -- that is, they're not contributing to keeping us afloat. If they're allowed to 'win' then we're in incredibly deep dodo. (....and the UK is in just as deep) So we desperately need to 'free' these countries, or at least render them impotent vassals.
I remember the debate in the late 1990s watching the US news. Our Congress was debating about how around 2010, when there was supposed to be massive budget surpluses, what to do with the money. Tax cuts or new social programs. I thought to myself that it would never happen. It didn't.
By that you mean the Fed has been feeding the super wealthy an all you can print buffet of green backs since 2008 and they have been able for the most part to not pay taxes on large chunks of those investments? And SVB being particularly tied to that same ilk of buffet goers? Then yes you are correct.
The root cause is the central banks in most developed countries keeping interest rates ridiculously low for a decade longer than necessary.
This results were inevitable, insanely high stock markets valuations as money flows in because you can't make money elsewhere. Housing markets insanely over priced because banks were willing to give you a huge mortgage that you could never have qualified for at normal interest rates. With all that free money VCs and other investors were throwing money at every stupid idea that came along, And of course inflation, no it was never going to be short lived as some wanted you to believe when it first started.
It's now time to end the age of stupidity and deal with reality, all that excess cash needs to be purged from the system.
It's now time to end the age of stupidity and deal with reality, all that excess cash needs to be purged from the system.
Or reallocated. If I had a large slab of cash, I'd have been studying the books and looking for distressed assets I could pick up on the cheap. Some of the companies SVB invested in probably have a bright and profitable future, others probably need to be taken off life support. But if I went full vulture (in the capitalism sense), there could be some value to unlock by liquidating those. Problem is I'd be well behind the investment pros who've been doing the same thing already and have been running those cold equations. A crisis can also be an opportunity.
But this story caught my eye-
https://nypost.com/2023/03/10/tech-ceo-with-at-least-10m-in-silicon-valley-bank-locked-out-of-account/
The CEO of a Boston-based health and wellness company said she has been unable to log into her Silicon Valley Bank account, where she has at least $10 million in deposits.
Ouch. But.. 'health and wellness'?
“We were going to raise a round a venture financing,” she said, noting that SVB “is one of the go-to banks” for that purpose... Tyrner told The Post that her company, which employs 63 people, generated $56 million in revenue last year.
Cool. Business must be good if they need more money.. Especially if the CEO has $10m in personal funds, although it doesn't say if that was generated from the business, or from previous ventures. But the business looks like it's thriving. Tell me more!
https://www.farmboxrx.com/how-it-works
We've partnered with healthcare providers across the country to offer qualified Medicare and Medicaid members the ability to order fresh produce, healthy cooking kits, and pantry essentials through their insurance or OTC member benefits.
Ah, so it's corporate welfare. Basically another one of those mystery box slingers that delivers overpriced stuff to people too lazy to go to the shops, but have also found a way to tap into fresh subsidies. Vaguely nice idea to encourage healthy eating, but I kinda question how sustainable they are. Online shopping's massively disrupted retail, and as they say-
the company quickly expanded to meet the demands of the millions of Americans living in food deserts who lack access to fresh fruits and vegetables.
If traditonal retailers close down due to online competition (or theft), then the number of people living in food deserts is only going to increase. Especially if transportation costs are also increasing due to competition and regulation. Or your produce costs due to misguided agricultural policies. So I kinda question if this is a 'good business', or one worth saving for the greater good. It's a sector that's managed to make a lot of money, but also seems rather vulnerable if customer's figure out they can get more choice and save money by, well, shopping the old fashioned way.
Also amusing to compare US vs UK advertising regulations. I doubt the UK's ASA would approve of the boxes overflowing with nature's bounty, but maybe this company's real value is their innovative and patented fruit & veg compression tech that shrinks the volume and leaves the produce looking perfect.. Now there's an idea.. same service, just use vacuum dried produce! Just add water and get more for your money.
So, here is a theory, just a theory;
The government caused inflation by printing too much money. To solve this the feds try to crash the economy by raising rates.
The stock guys are getting hammered by interest rates.
This week was bad. Fed is expected to raise even more.
In retaliation, the stock guys picked a vulnerable bank and told customers to pull their cash. It crashes and Now the fed gets a black eye.
They are in a pissing match and we are the ones getting wet. Not that they care.
In retaliation, the stock guys picked a vulnerable bank and told customers to pull their cash. It crashes and Now the fed gets a black eye.
I have no idea, other than it's helped boost popcorn futures. The more I read, the more I think it was inevitable given the bank's practices and rising inflation & interest rates. It's probably just the first big bubble to burst. I think it could have been helped along. There's been some stories about it's bigger rivals maybe helping it along by issuing notes that SVB was in trouble. They may have helped it along by not helping SVB raise capital. They may be sending a message that banks should get back to basics and focus on prudent financial management, and that the government should be focusing on the US economy.
People like Yelland have been ranting about climate change and ESG, not how the Fed's planning to get inflation back under control, and reduce the cost of living. SVB was the poster child (on recylable materials, natch) of ESG, throwing many lavish parties to celebrate this. Now they're (rightly or wrongly) the poster child for 'Get woke, go broke'. There's also been some other.. questionable activity, like execs selling shares and bonuses being paid just before everything imploded.
I think tomorrow's going to get interesting to see if there's signs of 'contagion', and also what the government's response may be, ie to bail-out an emblem of social(ist) policy, or let it burn. Not the kind of situation a sitting President hoping to start their election run on how strong they've made the US economy will probably want to be dealing with though. Also plenty of ammunition for his opponents, ie they're bailing out Ukraine, but not Ohio, or SVB's customers.
In 2019, the FED increased the quantity of short term treasuries by 1.5 Trillion dollars, because there were not enough short term bonds available to those financial companies desperate for short term loans (the repo market). See https://www.federalreserve.gov/econres/notes/feds-notes/what-happened-in-money-markets-in-september-2019-20200227.html figure 4, "Reserves and Treasury Securities Outstanding". And so we avoided another overdue recession. We've been on dope for over 40 years, my friend.
The last president to run a budget surplus was Clinton, the one before that was Carter. It was Reagan who discovered Voodoo economic (*George Bush the Elder's description, not mine).
It will need something larger than party politics to right the ship.
Blaming government spending on the failure of SVB is dumb, but it is politically convenient. Perhaps you should be asking why it's only SVB that's failed, and not the hundreds of other banks that are still functioning normally.
The simple fact is that SVB ran into a liquidity problem which was exacerbated by venture capitalist funds, including one owned by Peter Theil (a libertarian who doesn't believe the government should be regulating banks at all) started pulling their money out as fast as possible, thus precipitating the collapse.
Even now, the money isn't gone. It's just tied up in illiquid assets that will take time to liberate and return to the account holders. Those who have lost millions in uninsured funds will get eventually get most if not all of it back.
How do we know? Hedge fund managers are already offering to buy those accounts for 60-80 cents on the dollar, so they seem pretty sure the money will come back. They're certainly convinced they're going to make a killing from account holders who need the money quickly.
And let's not forget that the Republicans worked long and hard to water down the regulatory changes in the 2010 Dodd-Frank financial services reform law designed to prevent this type of thing happening again after the 2008 collapse, or that Trump signed more Republican legislation into law that further weakened the safeguards.
The fact is, this latest debacle could have easily been avoided with the right safeguards in place, but Republicans and people like Theil, whose actions helped cause the whole collapse, refuse to accept (for purely ideological reasons, apparently) that government has the right to place limits on what banks can do with their customers' money. Until that changes, this will keep on happening, regardless of whether there's a government deficit at all.
Republicans worked long and hard to water down the regulatory changes in the 2010 Dodd-Frank
you get your history upside-down: it was Clinton-the-Democrat that repealed the Glass-Steagall act in 1999, which then led to the very banking collapse of 2008.
Congress repealed Glass-Steagall, in the GLBA, which you might note is named for three Republican legislators. Clinton just signed it.
More importantly, both 1999 and 2008 were earlier than 2010, so your point is irrelevant to the claim you're arguing against. What members of either party did prior to Dodd-Frank says nothing about who did what to Dodd-Frank.
Rewind to Northern Rock in the UK.
Everything was fine and dandy until the MSM decided to print headlines that NR was failing and everyone would lose their money.
The result, the bank collapsed because it struggled to provide support the sudden exodus of money even though there were repeated statements that it was not going to collapse and people would not lose their savings.
This appears to be very much the same thing
A few VC hotshots decided that they would remove their funding screwing over everyone.
I'm not convinced by your Northern Rock analogy, SVB seemly failed due to a liquidity trap whereas Northern Rock foundered on Securitization. Happy to be convinced otherwise.
For those fortunate enough to be too young to remember, banks such as Northern Rock sold mortgages which were then bundled into CDO's for selling to investors as bonds. This is called Securitization and its theoretical strength is that illiquid assets, such as 25 year mortgages, can be made liquid while losses are diluted among a wider pool of investors.
Securitization is still a thing, but now for car loans rather than housing.
Ah yes, I'd forgotten the old "the deficit doesn't matter when it's a Republican in the White House" trope. Weird how Republicans suddenly lose their minds over the deficit the very second there's a Democrat president. Very odd that. Makes it look like they're using the issue for political purposes, but I'm sure it's just a coincidence.
Oh the things America could do if only they could disappear Bezos and Musk, then have them come back after a few months completely changed. And what real estate collapse? There is no collapse. Neither are there any COVID cases, power problems, or....reeducation facilities....and any one that says anything differently, well, we doubt you ever spoke to a person by that name or any of their family and friends.
Sorry, DV bc... Go see Royal Bank of Scotland. Or something called the Asian Financial Crisis. Or the Nation of Greece... for banking gone bad. Now, I expect a savvy commentator might find that most of the above financial failures had deep ties to the US banking system. But I'm not confident you'll find anywhere outside of Iran and North Korea whose banking isn't deeply entwined in that of the US.
As for mass murder, seriously? That beyond ignorant.
However, had you left it at gun violence, you would have received my enthusiastic upvote. On that subject, I confess, we are eff'ed up, and deserve all the shame and blame the world can hurl at us.
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