Feeling the Vibrations
The banking world is feeling vibrations in its foundations once again this week. Actually, this is more like an eight-on-the-Richter scale earthquake, and of course, the online responses are turned up to 11.
There’s something very ugly happening right now: VCs & startup execs who stand to lose their deposits at SVB are going *out of their way* to push a narrative that there’ll be a bank run on Monday if SVB depositors aren’t bailed out by the government. They’re yelling fire in the… https://t.co/6GYfGRczPk— Vivek Ramaswamy (@VivekGRamaswamy) March 12, 2023
Silicon Valley Bank (SVB) was birthed in one of the highest-achieving per-square-mile locations on Earth, becoming the 16th-most powerful bank in America.
Bad Investment Game
At the heart of its failure is heavy investment in long-dated US government bonds, featuring many mortgage-backed bonds. When the Federal Reserve sought to raise interest rates to combat rampant inflation, SVB's bonds plummeted in value.
Subsequently, many of the bank's customers started withdrawing their deposits, sparking a rush to sell off bonds at a loss, which sparked a downshift in confidence.
With all signs pointing to a bank run, late last night, US financial regulators triggered emergency measures to ensure all depositors will have access to their funds on Monday morning.
Bail Out or Not?
This stems the flow for many of the startups and smaller provincial banks who are connected to SVB, but the bank itself looks far from salvageable.
Now suffering the consequences of its recent investment decisions, the bank collapsed in spectacular fashion just a few days after announcing its new investment capital raising plans.
However, the fallout is tainted with controversy.
According to a prominent entrepreneur's social media post yesterday, there is “something very ugly happening right now.”
Yelling Fire in a Theater
“They're yelling fire in the proverbial theater,” says the post's author, clearly incensed we may be seeing hysteria spread across the country and wider world.
What's most curious about SVB is nearly 90% of its deposits were not insured, which dwarfs the usual rate in most banks.
The story continues, revealing how “they didn't hedge interest rate risk,” which was foolish, considering how great their portfolio was.
Moreover, the hedge they did make was based on currying favor in fashionable or powerful circles, boosting carbon-neutral and sustainable finance industries with a $5 billion investment.
Occupy Silicon Valley Is Coming
He finalized his condemnation, saying that this should herald an “Occupy Silicon Valley of historic proportions.”
It is unclear as to whether this move pays off, though most people suspect we are heading into similar territory to 2008 and a bank run is inevitable in the absence of an official bailout:
Dude, you’re so wrong. There is going to be a bank run.— Michael P Gibson (@William_Blake) March 12, 2023
Will you step down from your candidacy if you are wrong?
Filling up The Cookie Jar
The author has a reasoned response:
If there’s a bank run, it’ll be in part due to the panic created by the Silicon Valley depositors who will stop at nothing until they’re made whole. SVB is unique, but they’re eliding that fact to fill up their own cookie jars instead of admitting their own mistakes.— Vivek Ramaswamy (@VivekGRamaswamy) March 12, 2023
Too Big To Fail Again
However, others are also far less enthusiastic than Mr. Ramaswamy, customers will seek refuge in the kingpin banks once again. Regional banks don't want a clientele that doesn't have confidence:
If people no longer trust regional banks they’ll pull their money and deposit in the “too big to fail instead. This further consolidates power, places all of our money into the hands of a few, makes it easier for the Fed to roll out CBDC’s and marches us closer to Great Reset.— Kim Iversen (@KimIversenShow) March 12, 2023
Divisive Rhetoric Is Wrong
However, it isn't that straightforward. One commenter believes it is unfair and divisive to taint all startups and VC groups as the same.
Vivek – I like your take on a lot of issues. So it's sad you choose to create division, suggesting that “VCs & startup execs” as an entire group are acting this way. Most are NOT. They are trying to help people deal with the shock of a terrible situation they had no role in… https://t.co/eyu14PE1fI— Mike Maples, Jr (@m2jr) March 12, 2023
But there seems to be far more pessimism than optimism surrounding this catastrophe, based on how reassuring SVB was before this unfolded. There are echoes of the FTX scandal here.
Individuals will move their cash and disturb the banking sector, people will not trust promises or theories anymore. Even SVB said a week ago “everything is fine and your money is safe don’t panic”— Asaad Sam Hanna (@AsaadHannaa) March 12, 2023
That all will cause a bank run.
One commenter is furious that the original poster is mischaracterizing SVB customers as “woke coastal elites.” Maybe a little reputation burnishing is what is happening here? Who knows?
the way you are unjustly characterizing the average depositor at SVB as a ‘woke coastal elite' in order to vilify them in service of political ambition will never be forgotten— Mike Solana (@micsolana) March 12, 2023
Moreover, the political ambitions of the original poster are all too clear for some.
Literally no one is asking for a bail out of SVB. SVB equity value should go to zero and investors should lose it all.— thibauld 🌍🔥⏳🦇🔊 (@thibauld) March 12, 2023
But depositors should be able to recover their money, if you're against that, then… congratulations on torpedoing your campaign I guess? 🤷
It is hard to know what further implications await this potentially dangerous scenario. With reports of federal involvement now evident, time will tell.
This post was inspired by this thread.
This article was produced and syndicated by Wealth of Geeks.