Privatizing Profit, Socializing Risk for Tech Bros
Would the world end if they didn’t get their money back?
The venture capital investor class that’s thrown money at start-up companies in the hope they’d bought into the Next Big Thing was in a tizzy following the collapse of Silicon Valley Bank.
The federal government, led by President Joe Biden, apparently agreed that more runs on banks were likely. This is the message I heard on the radio this morning:
ATTENTION EVERYBODY— This your President saying your money is safe, that we’re willing to front money to bail out any banks feeling stressed in the current environment, we’ll take a break from further interest hikes at the Fed, and fear not, if we find any bad guys, we’ll throw them in the pokey.
Fat cats who’d warned that forgiving student loans would be bad for the economy (they should have said THEIR economy) were on bended knee hoping for a bailout, and they got it.
On Sunday afternoon, the Feds announced that they found enough pocket change in the sofa cushions (not really, I’m joking) so all depositors would be made whole, even those holding SVB’s estimated $150 billion in uninsured deposits.
This train wreck of a banking institution joins the real train wreck in Ohio recently as a consequence of actions taken by the Trump administration with the intention of deregulating the economy. It’s reasonable to think that the same Republicans who criticized Transportation Secretary Buttigieg will now be calling for Janet Yellen to serve soothing tea and cookies as depositors drop by to cuddle with their cash.
Let the invisible hand of the market make judgements, was what these venture capitalists told the public. In reality, the prospect of quick and dirty profits was their aim. Any ‘natural disasters’ occurring along the way were a feature, not a bug.
Some people seem to be actually be rooting for a disastrous consequence:
The debate in Washington DC and Wall Street over the weekend was been between advocacy of some sort of bailout (now packaged as not-a-bailout) or selling SVB to a larger banking entity that could afford to play the long game and make depositors whole.
The gun pointed at the regulators and those who said let the chips fall where they may is the premise the SVB’s collapse would cause a run on other financial institutions triggering a recession or worse.
Lest you think that’s too conspiratorial, consider the purchase of $51 million in gold bars in 2021 by Palantir, the computer analysis company founded and chaired by Peter Theil, as a hedge against a “Black Swan Event.”
A Black Swan Event is an unpredictable occurrence that causes extreme changes throughout society. Although the terms’ usage is mostly about financial markets, the 2001 terrorist attack on the World Trade Center is an example.
SVB’s failure didn’t end up being a Black Swan and its depositors can spend the week thinking about other things, like cutting social security or being afraid of drag queens.
In the weeks running up the bank’s takeover by the FDIC on Friday, executives sold a lot of their shares
Gregory Becker, CEO, sold 11% on Feb 27, 2023.
Michael Zucker, General Counsel, 19% on Feb 5.
Daniel Beck, CFO, sold 32% on Feb 27.
Michelle Draper, CMO, sold 25% on Feb 1.
At the beginning of its runup to being the 16th largest bank in the US, Theil and other venture capitalists settled on it as a good place to park their funds.
In the good old days –tech bros ran the roost– the bank parked $91 billion of its deposits in long-dated securities such as mortgage bonds and US Treasuries, which were deemed safe but are now worth $15 billion less than when SVB purchased them.
Inflation happened and the Fed decided that raising interest rates to regulate the economy was a good idea. (I should point out that this tactic hasn’t worked)
Things started going sour in the internet world. Crypto currencies started to look more like the Ponzi schemes many skeptics had warned about.
Major players in the internet marketplace rolled back expansion plans, laid off employees, and began burning thru growth and reserved funds to cover operating expenses.
Peter Thiel and his Founders Fund advised their companies to get out from SVB. Word spread, and soon others were doing the same, to the tune of $42 billion in attempted withdrawals on Thursday alone.
Here’s what happened after the FDIC closed the bank down in the middle of their business day, via the Washington Post:
Companies that did business with Silicon Valley Bank are already warning that the bank’s failure may force thousands of layoffs or furloughs, and prevent many workers from receiving their next paycheck.
Some experts worry that large numbers of companies could move to transfer their money from regional banks similar to SVB to safer, giant commercial banks Monday, leading to a fresh round of destabilization.
A move to make Silicon Valley Bank’s depositors whole without a buyer would probably require Congress to pass legislation drawing on an insurance fund paid into by all banks and backed by U.S. taxpayers — a fund that typically only covers deposits up to the Federal Deposit Insurance Corp.’s limit of $250,000. But more than 90 percent of SVB’s accounts were over that limit.
As it turned out, no legislation was necessary, thanks to an already on the books provision allowing the Fed to do whatever it wanted, if the economy was threatened.
“No taxpayer funding” was required. This means deductions on paychecks, etc., won’t increase. A fee will be assessed of all other banks by the Fed. Average humans will see the cost of banking increase, via fees and/or surcharges. It’s not a “tax”, will never be reduced, and will make banks more profitable once the crisis has passed.
The naysayers of doom on social media will continue to elaborate on how the bank’s ‘woke’ policies for employees were the reason for it’s fall. Blaming social change for just about everything that might be conceived of as being bad by the right provides cover for gutting the safety net and avoiding regulations that protect the public.
The big depositors at SVB hid their libertarian personas and went running for help faster than Ayn Rand heading out to her mailbox on Social Security check day.
And, just when I’m finish revising this article for the third time, comes this breaking news.
Via CNBC
U.S. regulators on Sunday shut down New York-based Signature Bank, a big lender in the crypto industry, in a bid to prevent the spreading banking crisis.
"We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority," Treasury, Federal Reserve, and FDIC said in a joint statement Sunday evening.
The banking regulators said depositors at Signature Bank will have full access to their deposits, a similar move to ensure depositors at the failed Silicon Valley Bank will get their money back.
"All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer," the regulators said.
Sometimes a bank failure is more than a run on deposits. To big to fail was supposed to be old news until it came time to bail out billionaires.
To nobody’s surprise, here’s local Congressman Darrell Issa with dollop of bs:
Louisiana Senator Bill Cassidy using pretzel logic to gin up fear over Social Security in the hope of justifying the GOP agenda.
Finally -and there are too many examples to pick the best one— the Elon Musk troll gang at Twitter are talking up a stock market crash, even as the market is up this morning.
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As usual, Elizabeth Warren was correct when she challenge the Fed, Chairman, for lack of concern for those he would force into unemployment by the rapid raise of interest rates. I have an idea, why don’t we give the Fed chair the power to raise the income tax rate (at an progressive rate) on earners over $400,000 when necessary to curb inflation so they will curb their spending. The raise should immediately be deducted from their paychecks until such time as inflation hits the Fed’s goals. The gain in tax revenue used for social security or other social programs. This should help curb (excessive) spending (by the wealthy) that pushes up prices without hurting the average person. While we are at it, let’s bust up the large companies (practical monopolies) that also push up prices.
Good appraisal of this "charity gift" back to the bank and big investors. I was worried they might have to sell their planes and extravagant homes. WHEW! Maybe we could offer them a loan with the same compound interest , confusion, and intent to deceive as our student loan holders have been given.