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.
I don't think we will see the QE floodgates open while Republicans control congress and Biden is president, but if a deep recession kicks Biden out and its a full House/Senate/President of Republicans, there will be a lots of it flowing. Just before that is the time to get back into crapto - if you can stomach the stench.
I think it might be the opposite problem.
I'd never heard of SVB until today, but I suspect we'll be hearing a lot more about them. Huge problem seems to be they were a tech darling, and there's been a stream of announcements from startups and established companies about their exposure. So a lot of tech and biotech businesses who had cash stashed with SVB, relied on them for banking services like payroll and apparently did deals to tie execs personal banking to SVB as well. As for the cleptocurrencies, it seems like a few of the exchanges and assorted shysters held large cash deposits there.. So if those are gone, I'm assuming that means they're going to be having their own liquidity crisis as well because they're going to be short on security for their funny money.
But doesn't look good for what seems to be a large number of start-ups who relied on SVB.
The assets were mostly government bonds, which are very safe.
However, because they are fixed rate bonds, if interest rates go up, which they have done, then the immediate resale price will go down. The amount of money you receive on redemption in maybe 25 years time will stay the same, and the interest payments you receive will stay the same, but that isn't much help if you need to sell them now to repay customer deposits.
The assets were mostly government bonds, which are very safe. .... katrinab
Even if assets are mostly government bonds, ...and where did that notion/info appear from, katrinab, for surely that would be most surprising in an adventurous entrepreneurial banking enterprise servering Silicon Valley start-ups chasing unicorn status ...... they are only ever relatively safe, and never safe if issued by and bought from a highly indebted failing disunited states operation.
And if the $209 billion in assets is accounted for as being a lien on customer provided assets/collateral for bank loans, are all customers well and truly screwed by a corrupt banking system gobbling its own clients.
From The Financial Times:
The banking group’s troubles stem from a decision made at the peak of the tech boom to park $91bn of its deposits in long-dated securities such as mortgage bonds and US Treasuries, which were deemed safe but are now worth $15bn less than when SVB purchased them after the Federal Reserve aggressively raised interest rates.
... to park $91bn of its deposits in long-dated securities such as mortgage bonds and US Treasuries, which were deemed safe but are now worth $15bn less than when SVB purchased them after the Federal Reserve aggressively raised interest rates.
This is the strange element. If I buy $1bn in Treasuries or Gilts, they're always going to be 'worth' exactly $1bn at maturity. That's why they're safe asset classes. But if I buy $1bn of 10yr Gilts at 0.5%, they're 'worth' less than $1bn at 4%. So the asset gets valued lower, even though they're both 'worth' $1bn, give or take the coupon. I should still have a safe $1bn in security.
So problem to me seems to be inflation rather than interest rates, ie with high inflation, my $1bn is going to be 'worth' a lot less in 10yrs time. I guess the issue for liquidity is liabilities are increasing, then my $1bn isn't going to cover or be 'worth' $1bn next year with inflation at 10%+
I guess this is one of those Fed/Central Bank vs bank challenges. With high inflation, when it comes time to redeem bonds, the dollar you pay back is worth less than when the debt was issued, so there's a bit of a perverse incentive to inflate away national debt.
$1bn in 10 years time is worth $951,110.13 at 0.5%, but only $664,832.64 at 4% - you multiply by (1-r)^t where r is the rate in decimal and t is time in years. You do the same for each of the interest payments you are due to receive on the bond for the smaller values of t.
So, if interest rates go up, the value of your bond goes down, not up.
$1bn in 10 years time is worth $951,110.13 at 0.5%, but only $664,832.64 at 4%
I.. disagree.
So
$1bn @ 0.5% gives me $5m a year or $50m over the term
$1bn @ 4% gives me $40m a year or $400m over the term
So at after 10yrs, I've got $1,005m or $1,400m. So the question is still how much $1bn is 'worth' in 10 year's time, and how much the interest payments are worth every year. So the value is driven mostly by inflation, not interest rates. I did once dabble in bonds when I realised I could buy $1 of debt for maybe 20c, on an 8% bond.. but that assumed the bond would ever become redeemable. So that fun game of gambling on 'distressed' assets. Sometimes on the assumption that conversion of that $1 to equity might just yield a bit of cash and possibly more once the equity got sold. Made a bit of money, but all seemed rather risky, especially in sectors I didn't really understand.
So I guess it's a question of timing, and maturity dates. So inflation is high now, but if I'm say 2yrs into a 10yr bond and inflation drops back to 2-3% next year, it's less painful. So back to your example, the value of my investment seems correct, if you assume 4% inflation rather than interest rates. I know the pro bond traders factor all that into their investment decisions, but the problem seems to be valuing a security at a point in time. But then figuring out what the future value might be gets a lot more complex, and riskier.
Then of course it seems to be the problem of what caused this run on SVB, like was it rival banks spreading FUD, and causing the collapse of a competitor? Especially if they could help that along by making it difficult for SVB to raise additional capital? I just get the feeling that we haven't really learned much from 2008 after all.
OK, you are looking at the position in 10 years time if you put $1bn in now.
That is fine, but isn't relevant to what happened at SVB. What is relevant to them is how much they would get now for an investment that pays out $1bn in 10 years time. And, because interest rates have gone up, the answer is, a lot less than before they went up.
First off, inflation is about costs, not value. Historically, productivity should grow by 2% annually. So, if you wait 10 years, you *should* get a basket products equal to the +20% that labour can produce in 2033. You *could* settle for exactly the amount of stuff made in 2023 and locked in a box for 10 years, but why would you?
Second, if I offered you a million quid on your 30th birthday, or two million (adjusted for inflation) on your 70th birthday, most people would have no problem identifying that the former was a much, much better deal. That’s 1.7% pa. Almost everyone would also pick the former against 2 million on their 50th birthday, and that’s already 3.4% pa. Economists think it’s irrational. Economists are wrong.
It is not irrational, because your personal cost of capital is likely higher than 3.4%, and there is also counterparty risk to consider. Will you still be alive and able to deliver on the agreement in 20/40 years time?
I think it's also based on personal circumstances. I'd go for the indexed $2m so I could have a happy retirement bonus.. But that assumes I'm in a position where I don't need (or want) that $1m now. The only way I'd really gain by taking it now is if I were confident that my investment could outperform the guaranteed $2m. Which should in theory be possible, just riskier. After all, 30yrs ago, I'd never have imagined that economists would think QE and NIRP was sound monetary policy. Problem with economists is they often tend to assume perfect markets, where none exist.
If you were renting a house, $1m would mean you could buy one, and the rent you save would be your return on investment. That would likely outperform the 3.4%. Or if it means you could avoid getting a mortgage, that would be your return on investment.
This is where you play the numbers game, it becomes almost like gambling.
Many companies prefer to rent rather than buy -- a common trick is to take the real estate that's the corporate facilities, sell it off and lease back the space. From an accounting perspective this may make sense and therefore by the rules of modern business its the right thing to do. Profits go up in the near term, bonuses are issued and everyone's happy. But when business slows you find that you're carrying a lot of extra cost which you can't shed (long term rental contract, depressed real estate market etc) but you still have to make the payments. You get squeezed so the obvious answer is to cut costs where its most flexible -- layoffs. This can (and has on numerous occasions) resulted in a corporate death-spiral.
One of the problems we had in the 2000s is that individuals were encouraged to think corporate. All that stored value in your house was wasted, it could be put to work either as investments or improving your standard of living. The problem is that once you mortgage your house you don't own it and if the holder of the note thinks they can get more by foreclosing they will.....you're out of a home and probably your capital. Finance thinking is flawed thinking -- its gambling.
I'll refer you to Morissons Supermarket in the UK. A cash rich profitable company when it was sold to a private equity group
who then loaded it with £6.6 billion in debt, paid themselves bonuses and loans etc. Now it's screwed. £400 million in debt repayments/ year BEFORE it can make a profit. These kind of banking shenanigans should never have been allowed.
I can't wait until teh whole system collapses!.
Quick profit. The shareholders get a nice payout and the PE company profits from dumping debt onto Morrisons. And now more PE companies are smelling blood in the water and are looking to buy up the physical buildings/land and lease them back.
"Ah, I see you have the machine that goes 'ping!'. This is my favourite. You see, we lease this back from the company we sold it to - that way it comes under the monthly current budget and not the capital account."
If you were renting a house, $1m would mean you could buy one, and the rent you save would be your return on investment. That would likely outperform the 3.4%. Or if it means you could avoid getting a mortgage, that would be your return on investment.
Yup, but it's why I think it's a timing & circumstances issue rather than a simple binary rational/irrational choice. Plus we're humans, we don't always act rationally.
So suppose 30yrs ago, I was living in LA. I'd be starting my career. $1m now would let me buy a rather nice property with enough space to think about raising a family. I'd also probably have some money left over I could stash in savings as rainy day money, or seed capital for my future pension. I've never fully understood US, or especially Cali's property tax system, but I might also have locked in a low property tax assessement value.
If it was today, $1m might get me a 1-bed apartment with a massive tax liability, and the high probability of ending up with negative equity. Sure, when I sold, it'd still be free money, but it's kind of the reverse choice. I may gamble that in 30yrs time when the $2m is due, property prices may have fallen and I could use the money to buy a nice retirement property and take up golf. Especially as I'd probably be downsizing anyway because hopefully any kids have left home.
I've kind of been in this situation before looking at 'luxury apartments' to cut commuting time. So a £650k apartment near the train station. It was.. nice, but it's still a fairly small 2-bed apartment in Slough. It just wasn't worth £650k to me, especially given the usual apartment taxes, ie being expected to pay £1k+ a month in 'service charges'. Never really understood that one when you rarely actually get anything close to £1k in services, and you end up effectively paying rent to the property 'management' company for a property you barely own given they're also leasehold. Nice business for developers though, if you can get financing and fiind enough suckers to rent yuppie flats. Especially when the developer discovers the era of free money's ending, there's a massive oversupply in 'luxury apartments' and the banks want their money back. It's rather sad that despite going through one housing bubble, we ignored those lessons and allowed it to repeat. Greed is good I guess.
I think other interventionist policies have also highlighted the challenges. The US (and to a lesser extent, UK) did various welfare and stimmy schemes. Have some free money! Some invested that money, others blew it on $2000 trainers that probably cost <$5 to make. A nice revenue boost for purveyors of massively overpriced aspirational tat, but that bubble's ended and the spending's dried up. No idea if goverments can track where the money ended up, eg who put their stimmy checks into 401Ks, and who just blew it, but I suspect the answer is probably a lot of it got wasted. Then again, governments seem to prioritise spending vs savings, even though spending is obviously inflationary.
"wasted" is a broad word... If you spent it on goods (which was ultimately what stimulus cheques were for), you poured that money back into the economy. It helped others along the chain to a degree (businesses stayed in business, their staff continued to be paid, etc.). But ultimately that money ended up in the savings/401K/assets of someone else, not yours. I guess if that's what you mean by "wasted", then you're right.
First off, inflation is about costs, not value.
Kind of agree and disagree. Inflation obviously impacts costs, and because economic policies have driven those up, inflation has obviously increased. That has more impact in some areas that others, eg it probably costs more now to buy plywood for shuttering than it does for the concrete. One's price has inflated far faster than the other, even if the actual costs haven't. $1 wiill still be the same now as in 10yrs, it's just what you can do with it that changes, ie the purchasing power or value, and that's driven by inflation.
Historically, productivity should grow by 2% annually. So, if you wait 10 years, you *should* get a basket products equal to the +20% that labour can produce in 2033.
I guess that depends how you err.. value productivity. So the political thinking that it should be a target to raise inflation by 2% annually, rather than decrease costs or those productivity gains. So I make widgets. With my 2% annualised productivity gains, in 10yrs time, I can either be producing 20% more widgets, or produce the same number for 20% less cost. Then I could reduce the price because I'm producing more volume, or because I'm making more margin and still make more money if I just cut the price 10%.
Problem is that doesn't happen. Prices just get raised 2% annually, because that's traditional, and well, inflation! Businesses are obligated to maximise shareholder value, so if you can get away with raising prices faster than your costs increase (or decrease), you go for it. Arguably there have been no productivity increases because prices increase constantly. Even when products are also shrinking. Obviously that all leads to inflation, costs spiralling out of control and customer's suddenly stop spending.
Oops.
Kind of why I keep banging on about our insane energy policies because energy is an input cost to just about everything, and is the main reason why our inflation rate has been soaring. And entirely policy driven. Also ironically aided and abetted by 'socially' minded companies like SVB, who constantly bang on about climate change, ESG and mostly irrelevant stuff like keeping both the bank and your customers afloat. Their risk manager certainly seemed to have his attention on the wrong balls. Inflation rises, costs increase, customer's need more money and.. the cheap money's gone. And so is the bank. Or it's customers.
You *could* settle for exactly the amount of stuff made in 2023 and locked in a box for 10 years, but why would you?
I guess that depends on your needs, greed or appetite for risk. But with gilts, the traditional thinking was you trade yield for security. That security seems to be vanishing, and so might the appetite for gilts. Hence why interest rates go up when customers lose confidence in their government, which is a problem especially when governments rely on debt. Also potentially a huge problem, if de-dollarisation continues or accelerates, which again is a policy problem. In other news, this just happened-
https://www.bbc.co.uk/news/world-middle-east-64906996
Middle East regional rivals Iran and Saudi Arabia have agreed to restore diplomatic relations, seven years after severing them in a bitter row.
The unexpected announcement came after four days of talks between officials from both sides in China.
Probably not that unexpected given State was hopefully aware of it, just powerless to do anything about it. The Bbc neglects to mention part of that deal was oil priced in Yuan, and next steps will probably be KSA and Iran joining BRICS.
Oh dear.
Suddenly, a fairly large part of the world won't need as many dollars. More inflation, fewer customers for dollars, and inflation is going to rocket even faster. So I still think inflation is the problem, not interest rates given those are just a crude policy lever to try and manage that problem. Reducing costs is arguably more effective, but goes against existing policy. Which kind of goes back to bondage. If I've got $1bn @ 4%, and inflation's running at 2%, I'm still in the money. If it's 4% and 4%, at least I get my money back. If inflation > interest rate, well, then I'm losing money. Which I guess is also katrina's point. That value is based on market conditions and sentiment. Sure, if there are bonds @4%, mine @0.5% are going to be less attractive, but $1bn is still $1bn, unless again that's inflated away.
Indeed….I’ve gone to SVB balance sheet on their website, and I suspect the real problem is that their clients didn’t understand what they were. Or perhaps even SVB fooled themselves into not understanding. But a *bank* they were not. They were a rather unusual *hedge fund*.
A *deposit bank* makes its money off the interest from loans, and more precisely from the term conversion implicit in that. SVB in fact were loaning out only $70bn of their $200bn assets. The rest is invested in bonds. Now on the one hand, a 65% tier 1 capital ratio is stupidly high (good) for a bank, which is normally 8-10%. This should really have rung alarm bells. In fact, SVB is mostly a wrapper for government bonds. SVBs return comes from speculative return on Gov Bonds, financed by the deposits of their clients, for which *they* pay their *depositors* a couple %. This is a hedge fund. It doesn’t stop being a hedge fund just because the underlying asset class is normally considered low-risk. Instead of the standard “2% management charge plus 20% of investment returns” hedge fund model, they offered “-2 plus 100”. Any of their deposit clients could simply have bought the gov securities directly (they are companies large enough to do so, and those securities are liquid), but SVB offered them a better “interest rate”. And at no point did their customers question where that interest rate could be coming from. They simply thought it was a bank, because it’s called Silicon Valley Bank. And the regulator seems to have fallen for it too, fooled by the framing of the business and the high tier 1 capital ratio.
SVB were “all in” speculatively on artificially high bond prices supported by artificially low interest rates. When the hedge fund’s bet failed, so did the hedge fund. The regulator needs to look at it definitions.
SVB were “all in” speculatively on artificially high bond prices supported by artificially low interest rates. When the hedge fund’s bet failed, so did the hedge fund. The regulator needs to look at it definitions.
Yeh, I thought that was a little strange, plus their exposure to start-ups. I thought regulators tried to limit risk by segregating banking activities, but it's looking like that didn't go far enough.
From another discussion - levels at which various rules applied were changed back in 2018 and various things changed if the bank had less than 250 billion in assets (up from 50 billion) - cadwalader.com link
Oh. God. Well spotted. So, SVB kept their assets just under the new $250bn threshold, and avoided all the bank compliance stuff including stress-testing.
They knew. Everyone knew. This was the *direct* hand of Trump, f*ing up the lessons of 2008 by smashing Dodd-Frank. Because he was just too stupid to know what he was doing. At least we now know what to look for: there are “about two dozen bank holding companies” all hovering below the magic $250bn threshold. And they are all going to go bang in the next few weeks or months.
Now add -
SVB CEO Greg Becker lobbied the government to relax some Dodd-Frank provisions on regional lenders in 2015. Trump did in 2018
In 2015, SVB Chief Executive Officer Greg Becker urged the government to increase the threshold, arguing it would otherwise lead to higher costs for customers and “stifle our ability to provide credit to our clients.” With a core business of traditional banking — taking deposits and lending to growing companies — SVB doesn’t pose systemic risks, he said. ..... https://fortune.com/2023/03/11/silicon-valley-bank-svb-ceo-greg-becker-dodd-frank-trump-rollback-systemically-important-fdic/
Which we now know translates to ....
SVB Chief Executive Officer Greg Becker speak with forked tongue, Kemosabe, for a core business of theirs was not traditional banking — taking deposits and lending to growing companies — but taking deposits and investing in failed government issued dicky Treasury notes and highly risky speculative companies ...... which does have one asking of the UKGBNI Chancellor of the Exchequer and the Bank of England why they would even be thinking of involving themselves in spending other peoples monies to bail out a right dodgy operation in a foreign jurisdiction in which they had no effective remote leverage and lost clients' billions of dollars.
Fools and their money are easily parted is what they say, so don't be a fool is wise counsel says I.
The "UKGBNI Chancellor of the Exchequer and the Bank of England" are involving themselves in bailing out SVB UK, i.e. the UK-based branch (which claims to be ringfenced from the US operation, but, because the parent group's going bang, it is now also going bang). This is a repeat of Lehman Bros 2008.
I don't know how smart one needs to be to rally a mob of torch-waving pitchfork-totting, conspiracy theory prone, bigots who have never heard the term "critical thinking", rattle their cages and tell them they are right, to have them hail you as the one and true leader, the one they should get behind.
Of course Trump knew what he was doing. No, he's not stupid, but he's no brighter, smarter nor more skilled than anyone else. He simply decided to jump on the populist bandwagon while most decent folk wouldn't touch it with a barge pole.
According to Bloomberg One crucial fact to keep in mind as SVB’s failure ripples across industries is that the bank was an investor in its own right. The company’s venture capital and credit investment arm has directly invested in several fund managers and portfolio companies for more than 20 years. The firms that have benefited from its money include: Sequoia Capital, Accel, Kleiner Perkins, Ribbit Capital, Spark Capitil, and Greylock.
Sequoia are the ones who posted the glowing profile of SFB (https://web.archive.org/web/20221027181005/https://www.sequoiacap.com/article/sam-bankman-fried-spotlight/), until FTX's collapse resulting in $210 million writedown for Sequoia, after which they deleted SBF's profile - without comment.
Between 2021 and today the total capital worth of all crypto has fallen from 3 trillion to 1 trillion - a 2 trillion hole. Even if SIVB did not directly invest in crypto, they were link through cross investment on cross investments so deep nobody knows.
Meanwhile, executives were earning unworldly salaries and bonuses - live today, pay tomorrow. (Well - somebody pays.)
The small company I work for outsources their payroll to PayrollTime.com which uses Patriot Software and they use SVB. Fortunately, each client or partner of Patriot Software has a separate account with SVB. Direct deposit is mandatory because of this arrangement. SVB has not been consistent with their direct deposit orders for my bank to extend early direct deposit to my account a feature many banks are offering ( I realize that now ). My company is handling this as well as can be expected for a small company. Most of the employees work in the field, each received a personal phone call to inform them of the situation. The situation is an expectation that the pay will process Monday, but a check was offered if needed. I declined the check today because resolving the difference if deposit goes though would be a nuisance. I'm more pessimistic and do not expect Monday processing, but I'll be patient, I have enough liquidity to be so.
I will be making a stink Monday afternoon if no deposit is made or no check is available. Technically, the company has not met payroll.
I will also be voicing my opinion concerning using a company which is a rebranded online payroll (cloud) using a rather generic name of PayrollTime.com. Nearly the epitome of a shady operation.
If PayrollTime.com has more than the $250,000 deposited with SVB, then they had better make good on the payrolls first before making themselves whole.The payrolls are not their money. Should those shenanigans occur, I will be seeking a lawyer. Of course my employer would be one of the defendants, but they are ultimately responsible to make payroll. I will not tolerate passing the buck(s) in a game of pay keepaway and liability avoidance.
Ouch.. I read a few payroll companies were doing the same thing. As I understand it, providing there really is a seperate SVB account for each PayrollTime client, then $250K should be protected. Challenge it seems will be getting access to it now the bank's been seized. It sounds like a lot of people are going to be in the same position. If your company has offered to pay by check or make a deposit though, I suspect a lawyer will tell you they have made a good faith attempt to make payroll obligations though.
Would that held deposit be covering $250k per month, or overall per year?
Per account. So then it's a question of how many months of payroll does $250k cover? I'm curious how or if payroll services are regulated. So if they're like lawyer's client accounts where monies have to be kept seperate, or if payroll companies can co-mingle their client's funds. Hopefully they can't, but for a business, relying on hope isn't often good financial planning.
Challenge it seems will be getting access to it now the bank's been seized
A reasonable assumption. But the bank employees except for a few high level suits that will have been replaced by state bureaucrats still have a job (this week anyway). And the $250,000 comes from a real insurance operation -- the Federal Deposit Insurance Corporation that has some experience dealing with this sort of thing. The problem will be when the $250,000 per account has been burned through. That's a probably matter hours for larger operations, days for medium sized. A few of the smallest and newest might last a few weeks or even months.
And the bank still has considerable assets albeit apparently not enough to cover its obligations. Apparently, some of that cash will be available "soon".
Still, this is surely a very bad thing. It may save the public from having to deal with a lot of awful AI products that are even more erratic and less dependable than Elon Musk since AI seems to be the fad d'jour. And maybe it'll finally drive a stake through the (virtual) heart of cryptocurrency. But this is not a good way to do those things.
Might be a good time to read over that plastic card of In case of emergency ... instructions in the seat back of the seat in front of you. The one you've been ignoring for years. ... Now then, where is this life vest they are going on about? And how does it work again?
A reasonable assumption. But the bank employees except for a few high level suits that will have been replaced by state bureaucrats still have a job (this week anyway). And the $250,000 comes from a real insurance operation -- the Federal Deposit Insurance Corporation that has some experience dealing with this sort of thing. The problem will be when the $250,000 per account has been burned through. That's a probably matter hours for larger operations, days for medium sized. A few of the smallest and newest might last a few weeks or even months.
Yup. I think this is perhaps the wider structural or risk management issue. So according to latest news, FDIC says protected funds should be accessable Monday. What happens next would seem to depend on how CFOs or Treasurers managed risk. Or how service companies used by businesses managed risk. One of the biggest losers seems to be Roku, with $500m or 25% of it's cash with SVB, Losing that has got to hurt, but it's still got 75% left. Other companies may be less lucky/well managed and be more exposed.
I'm curious if it'll affect business thinking as well, so the payroll outsourcing as an example. With my own businesses, I'd been pressured to sign up for various payroll services, but that was kept in-house. They''d never had enough employees to exceed $250k, but I generally had payroll from a dedicated account with enough in it to cover 3-6 months payroll expenses. Helped to ensure we could make payroll, and generally covered by insurance schemes like FDIC. In fact when I had some US staff, that was one of the concerns, ie how much would be protected? Especially after 2008..
But it was always a concern of mine. Mostly my businesses were normal banking, but occasionally needed credit for design/build projects were we had to buy tin before it was sold on to clients. It was easier to get a revolver from our bank because we had the relationship, although that concentrated risk. Same with 'offshore' banking, so having US or Euro accounts to run projects in those countries. Most jobs weren't large enough to need or justify going outside our own traditonal bank, or need any fancy hedging or securitisation. Cash was still split though.
I also think I'm lucky enough to have grown up when interest rates were 8%+ so that and inflation have always been at the back of my mind. As others have said, if businesses are living hand-to-mouth and can't survive relatively small interest rate moves, then they're perhaps not meant to survive. Then again, that's always been the challenge for start-ups, and valuing those businesses.
I also think I'm lucky enough to have grown up when interest rates were 8%+
I remember when mortgage interest rates were 15%.. (we had an endowment mortgage and saw the value of our house go down from the £68K we'd paid for it to £55k). Fortunately, we were both (reasonably well paid) prgrammers in a fairly cut-throat environment where constant staff poaching was rife and so were paid a fairly decent retention bonus (50% of which was paid out at the end of 3 years) so we managed to survive.
We still took a fairly big hit when we went to sell the house in 1997 to move to our current house. Needless to say, the current house has grown fairly massively in price since then.
And, equally fortunately, we ended up on a tracker mortgage where we could overpay so, when our very-underperforming endowments vested, we actually had enough to pay off the mortgage.
Moral of the story? The Finance world is inherently unstable and anyone that tells you that they can predict out to 5 years is either a fool or lying.
You would have thought they would have put laws on the books to prevent banks from doing this sort of stuff after that great depression thing in the 1930s. They did? Now you're going to tell me they repealed them at a point in time where they would play a role in the 2008 chaos....uh-huh...so the same thing that has happened before is happening again? We talking a time loop situation or more of a grand cycle a la battle star? Gotcha. Ok, will disconnect the networked gear to prepare.
But this isn’t a liquidity crisis, it’s a solvency crisis. People withdrew their money because they realised that.
The “bank” lost money because most of its business isn’t actually banking (lending), it’s a leveraged speculative bet on bond prices, financed by depositors money. Understandably, as soon as the depositors realised this, they ran for the hills. SVB already lost a lot of money on the bond market, but can (nearly) cover that within a billion or so. So they’re nearly solvent, or would be with a small cash injection. The problem is that they have another $100bn of bonds still on their books. This is their true core business, bond speculation. There’s no real retail banking business here, matching depositors with loans. If interest rates went up another 2%, they would suddenly be in the red by another $6bn, which can come from only one place, their depositors.
It’s a classic commingled “investment bank” / speculative hedge fund, of the sort banned by Dodd Frank after 2008. They found a loophole that allowed them ironically to present their leveraged bet *as* tier 1 banking reserve. The regulator should have stopped them years ago.
Let's see, I'm sure they're crypto investment has been quite lucrative. The myriad companies they took on board during the, "money machine go brrrt for free," era despite having no real plan or chance of making it in a world where money is no longer free. Vineyards in state that nearly went totally dry last year, and despite the recent weather are starting from a point behind where they started last year. Yep, Vineyards. I'm Sure there are no other pet projects in there. Bottom line, when you are the bank of choice for Venture Capitalists, when the times get even a little less than printing money at a rate that it fills up an Olympic swimming pool every second, Peter Thiel is gonna start with the gossip.
I am looking for a 'smoking gun' connection between ESG and the collapse of Silicon Valley Bank.
They definitely had a LOT of investment in this ESG stuff, as I research via an online search. Although I have not yet found any indication that ESG investments were failing more often (as I would expect), or whether their NOT doing venture capital for NON-ESG stuff (let's say a rifle-maker, fossil fuel exploration, a startup that focuses on 'hard workers' instead of 'diversity', or coal-fired power plants), they certainly seem to put a nice public face on their "ESG-ness".
The main reason STATED for SVB's collapse is that bond/interest rate connection. They had $BILLIONS in bonds with near-zero interest, and when interest got jacked up by 'The Fed": to (allegedly) stop inflation [by stifling economic growth, that is how this theory works], the low interest bonds basically got devalued and liquidation lost them nearly $2 bilion.
However, their bread and butter is venture capital, in the Silicon Valley area. But these businesses are laying off now, maybe even defaulting on high risk loans. So there is not a lot of startup activity, and possibly a lot of RED INK.
And if their investment policy EXCLUDES money making business that are "not woke", their potential revenue stream dries up.
I am having a hard time proving it, but my instincts tell me that this IS a major factor that is not being talked about [like so many things are being said quietly, it seems]. Until now.
Meanwhile China funds open pit cobalt mines in the Congo with child slave labor, and provides batteries for the world. Those batteries are then purchased by ESG-qualifying businesses that might be funded by banks like SVB. Solar panels, electric cars, and electricity storage banks for Solar and Wind? No PROBLEM! ESG says those businesses are *WONDERFUL*.
And banks/crypto are going under, and the possible primary driving force of SVB's low cash flow is being ignored...
How would you “prove his views wrong”? Bombastic has a thesis (ESG caused this), which requires evidence (otherwise, why would he think it?). But he’s said that he doesn’t have any evidence, and is looking for some. So, why would anyone believe his thesis? Given that there’s no evidence for it? It’s rather hard to come with evidence for a negative. I don’t have any evidence that inhaling unicorn shit *didn’t* cause SVB failure, but I suspect the two are unrelated.
Oddly, I have some sympathy with some of Bombastic thesis. If *some* investors are avoiding non-ESG investments, it’s logical that will depress the price of non-ESG, and therefore raise the return. It’s certainly known to be true of the tobacco sector. But I personally am happy to forego a roughly 10% price advantage to avoid tobacco. Since tobacco would only be a small fraction of overall portfolio, maybe I’m missing out on 0.2% return overall. Ok, I can live with that. It seems bonkers to suggest such a second-order effect would bring down SVB, when there’s a clear obvious first- order effect: 70% of their business is speculating on government bonds, not lending.
Well, given that no attempt was made to prove the original views right, it's a bit presumptuous to expect us to prove them wrong. Whether or not ESG is related, the original view can be summarized as "I don't like ESG, and these people had some ESG investments, so I'd really like it to be the reason they crashed so I can say that ESG is bad instead of just something I dislike". The poster did not attempt to prove that point. He in fact states that he has no evidence and that it's something he wants to be true, not something he knows is true.
Whether or not it's true, it's speculation based on nothing designed to substantiate a preexisting prejudice. Such theses are not really worth the effort it would take to find disproving information until some effort is put into proving them. It's possible it would be correct if you could prove it, but it's also quite likely that it is not. We have no way to tell and no reason to debate the issue with someone who decides what the conclusion will be before or instead of trying to analyze it.
They provide banking services for venture capital firms, which is a very different proposition to actually investing in their funds.
Office account receives management fees from the funds invested, pays out salaries, bonuses, rent, all the other expenses. There is a risk that the management fees don't come in, but is that a risk for the bank?
To put it in terms that the economists understand, the economy is a subsidiary of society, which is itself a subsidiary of the environment. The economy can only make itself bigger by borrowing from the other two with interest.
Live by the non-ESG, die by the non-ESG, take your (and everyone else's) choice.
I was an early "investor" in ESG stuff. I withdrew when I saw how many of the companies were scams, (Growing "new" forests in the Amazon, after the loggers have been through)
Then there is "Carbon credits" which are like paying someone else to diet for you
Finally i saw the dozens of "accreditation" businesses, which are indeed simply green-washing virtue signally.
When it comes to ESG, Good humans just do the right thing.
Sadly, most corporate CEOs leave their humanity at the front door!
Perhaps it was deliberate - but if you were a VC and saw a potential risk of the bank going under, then telling your clients was to get their money out was the responsible thing to do - for both their interests and your own. The problem is that becomes a self-fulfilling prophesy.
Watching all the "libertarian" VCs call for a bank bailout. I guess they are only against welfare and bailouts when they benefit the other guy! People on Twitter are mercilessly crucifying one VC who was outspoken in his hatred for the 2008 bailouts after he was saying that SVB must be bailed out or it will destroy the VC industry in Silicon Valley. More like it will cause them financial pain and they might have sell their yacht or something...
I hope the Fed doesn't get bullied into a bailout by these false worries of systemic issues or claims that everyone will abandon midsize banks for the "too big to fail" banks. SVB is a special case because they were making loans to startups that no one else would make. All the real estate and small business people in my community (and I'll bet this is true everyone) know which local banks are willing to take on more risk in their loan portfolio. Those who have marginal projects seek them out. Those who have solid financials go to the banks with higher standards. Inevitably the banks willing to take on more risk get bought out by the more solid banks when there's a shock to the system (it happened in 2009/2010 with one bank I know of around here, it happened again during covid with the new darling of real estate investors with marginal projects)
The mid sized banks that are not taking on excessive risk will be fine, even if like SVB they were overinvested in long bonds. That will hurt their shareholder dividends, but won't cause the bank to fail. Bad loans are the only reason banks fail.
>Watching all the "libertarian" VCs call for a bank bailout. I guess they are only against welfare and bailouts when they benefit the other guy!
A good while ago I recall reading something on the lines of "everyone's a communist with other people's money". Seems to apply.
This post has been deleted by its author
Silicon Valley Bank employees received their annual bonuses Friday just hours before regulators seized the failing bank, according to people with knowledge of the payments. The Santa Clara, California-based bank has historically paid employee bonuses on the second Friday of March, said the people, who declined to be identified speaking about the awards. The payments were for work done in 2022 and had been in process days before the bank’s collapse, the sources said. ... The size of the payouts couldn’t be determined, but SVB bonuses range from about $12,000 for associates to $140,000 for managing directors, according to Glassdoor.com. ... SVB was the highest-paying publicly traded bank in 2018, with employees getting an average of $250,683 for that year, according to Bloomberg.
Hmmm - the highest-paying publicly traded bank crashes the economy causing debilitating hardship for the less well off? Pure coincidence?
Rats trying to leaving sinking ship with feathering nest eggs is not a good look for failed bankers, is it ........ What Did These 3 SVB Execs Know?
The Hows and Why’s of an SVB Collapse for Dummies ...... https://www.euronews.com/next/2023/03/11/silicon-valley-bank-collapse-heres-how-and-why-it-happened
Lesson 401 Revisited yet again ..... And .... It’s gone
The US banking system has been a fragile, half-broken mess ever since the Republicans repealed the regulations that used to control the banks. That move led to the last major bank crashes, and it hasn't STOPPED causing them.
But the "big money" players don't WANT the rules changed back; they want to gamble with depositor's money in hopes of earning high profits. :(
Jim Cramer, of 'Mad Money' infamy, was pumping SVB's parent's stock a while back. That's the 'Kiss of Death' for anybody who keeps an eye on this carnival barker for contrarian picks. And the company's execs were lobbying Congress to relax regs and oversight a few years ago; the result was inevitable (don't worry about the execs; they cashed-out a couple days prior to the collapse).
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