Posted on 03/14/2023 7:44:25 AM PDT by DoodleBob
The Treasury, the Federal Reserve, and the Federal Deposit Insurance Corporation announced on Sunday that they will guarantee all deposits that were still held at the ill-fated Silicon Valley Bank when it collapsed last Friday. This is probably a good thing. SVB was the sixteenth-largest bank in the United States, with tens of billions in holdings still trapped behind its crumbling walls. Vaporizing that much money might have had dire implications for other parts of the American financial system—and for thousands of innocent customers who believed their money to be safe within SVB’s coffers.
The actions these government entities have undertaken on the bank’s behalf also seemed like a no-brainer to many Silicon Valley figures, who spent their weekends arguing and tweeting passionately for it to happen. One of them was David Sacks, a PayPal co-founder and prominent venture capitalist in the Bay Area. “Where is Powell? Where is Yellen?” he asked. “Stop this crisis NOW. Announce that all depositors will be safe. Place SVB with a Top 4 bank. Do this before Monday open or there will be contagion and the crisis will spread.”
But Sacks quickly found, via social media, that not everybody was so enthusiastic about a bailout for some of the richest people in the country. The Biden administration had to take pains to explain that no taxpayer dollars would be spent to guarantee SVB’s deposits and that the money would instead come from the FDIC’s insurance fund. While true in a technical sense, that fund is replenished by fees from banks all over the country, which in turn come from the fees that Americans pay to their banks all the time. In an indirect way, we all just bailed out Silicon Valley this weekend.
“The only reason people are being stubborn about this point is because Silicon Valley Bank has the name Silicon Valley in it,” Sacks noted in a Unherd interview on Sunday night. “If this was a farmers’ bank and it was 40,000 farms, small business farms that were on the hook, everybody would understand. The arguments being made would be: we can’t let 40,000 farms go out of business. They didn’t do anything wrong. They just trusted when they put their money in a bank that it was safe.”
That observation is undoubtedly true. It is also an important realization by someone who dwells in the gilded bubble of Sand Hill Road. Most people have an affinity for farmers because they provide a valuable service in our lives. Many people also have increasingly negative views of Silicon Valley and Big Tech in general after living with the consequences of its decisions over the last decade or so. The tech V.C. community should take it for what it is: a warning to change course.
It does not help matters that SVB’s downfall appears to be somewhat self-inflicted. The FDIC effectively took it over on Friday morning before the markets could open. In the preceding days, reports of its precariousness had prompted many key Silicon Valley figures, such as Peter Thiel and other high-profile venture capitalists, to withdraw their money from the bank and quietly urge others to do the same.
A bank run inevitably followed as word spread. On Thursday, the day before the FDIC intervened, a whopping $42 billion had been withdrawn from SVB out of just under $180 billion in deposits. By Friday, SVB had become the second-largest bank failure in American history, exceeded only by the collapse of Washington Mutual in 2008. A broader contagion effect appears to have been avoided for now in the American financial sector, meaning that most Americans won’t notice what happened unless they checked their retirement portfolios for a few hours on Monday morning.
Why was a bailout so urgent in this case? When a bank goes under, each depositor is guaranteed to recover at least $250,000 in deposits from the FDIC’s insurance fund. That quarter-million-dollar limit is usually fine since most Americans do not keep $250,000 in the bank on a day-to-day basis. Wealthier Americans find other ways around it: Milwaukee Bucks star Giannis Antetokounmpo famously keeps up to $250,000 in at least 50 different banks just in case.
But the Silicon Valley V.C. class thought a little too hard outside the box this time. Working with SVB, which had a nearly half-century history in the region, was seen as a mark of pride and success. Start-up founders were encouraged to rely on the bank for all sorts of financial services, from their company’s payrolls to their own mortgages. That lack of diversification meant that the bank’s failure had an outsize impact on Silicon Valley and the broader tech ecosystem. Sacks and other venture capitalists understandably flocked to Twitter to raise the alarm.
Here is where I must note that I don’t want to paint with too broad a brush here. There are plenty of tech companies that sell products that improve people’s lives or are good cost for value. Apple didn’t sell 232 million iPhones last year because people don’t like them or don’t get anything out of them. Laptops are lighter and faster than ever. Hard drives store more data than ever. There are a host of potentially promising clean-energy start-ups that could one day be key players in the fight against climate change.
But there are also tech companies that have enriched themselves at the cost of making other people’s lives considerably worse. Start-up founders often talk about “disrupting” an existing industry through some sort of technological innovation or new computer-based system. Uber and Lyft burned through billions upon billions in venture capital over the last decade while they wiped out taxi-cab companies in major cities around the world. Supplanting them are transitory “gig economy” jobs that lack the stability or income of what they replaced.
Airbnb, which once served as a way to temporarily rent out an extra room or a pied-à-terre, has now grown so large that it’s warping the housing market in some parts of the country. Would-be “real estate entrepreneurs” are gobbling up housing and rental stock in some markets so they can float it as short-term rentals on the popular service for “passive income.” There has been some backlash to this, both in the form of local regulations and customers who are tired of paying exorbitant cleaning fees, but the company shows no real sign of slowing down.
I could go on and on. There is widespread skepticism (at best) of companies from both the political left and the political right for, respectively, facilitating and censoring extremist content on their services. People are not generally thrilled that their personal information is being bought and sold like other commodities. Cryptocurrencies did not begin as a Silicon Valley gewgaw but quickly became one of its industry’s obsessions. They made a few people tremendously wealthy at the cost of a great many marks, rubes, and bag holders.
It is also hard not to be a little resentful of Silicon Valley’s immense wealth if you live in the shadow of it. California’s housing crisis is now legendary for its scope and scale. But it has also spread outside the Golden State’s borders to drive up property prices and rent well beyond what neighboring states’ residents can often afford. Families and longtime residents have been priced out of their communities in Arizona, Idaho, Nevada, and elsewhere in the Mountain West. The first and most believable villain on the popular TV show Yellowstone was a California real estate developer.
And then there is Silicon Valley’s culture—hyperlibertarian, hypercapitalist, and hyper-self-confident. Government regulations are something to be avoided or ignored. Unions are verboten. Those who create companies are referred to as “founders” with an added touch of reverence, like America’s Founding Fathers or the villains from Star Trek: Deep Space Nine. When they create a new company, it is described as “building” in the same tone that one might use for a cathedral. Silicon Valley is deeply in love with itself, which partly explains why the mundane task of parking your cash at a bank turned into a status symbol at SVB.
It does not help that the golden boy of the Bay Area over the last year or so has been Elon Musk. Over the past year, the Tesla and SpaceX CEO has purchased Twitter, summarily fired most of its workforce, and then driven it into the ground. Since it is no longer a public company, Musk is not required to publicly disclose its financial health. But we can draw some reasonable inferences from the fact that he is trying to rapidly monetize nearly every aspect of the user experience and, perhaps more ominously, has skipped paying rent and Amazon Web Services hosting fees at various times in recent months.
Silicon Valley’s leadership caste has not looked askance at his scorched-earth approach to Twitter’s workers, his weird musings on “wokeness,” or even his public firing-mocking of a disabled Twitter employee last week. (Musk, perhaps after finally answering his lawyers’ calls, reversed course on the last one.) Other “founders” have found it inspiring and sought to emulate it. In sum: This is not a culture that respects either its workers or its neighbors, and they should not be surprised when workers and neighbors don’t respect it in turn.
Sacks only apparently realized the scope of hostility toward a bailout of Silicon Valley over the weekend. “We’ve reached a point of political division where it’s fine to root for members of another tribe losing their bank deposits—even though you would protect members of your own tribe in the same situation,” he wrote on Twitter. “Be careful what you wish for because the shoe may soon be on the other foot.” But “political division” is not actually correct here. There was actually a remarkable consensus on opposing a taxpayer-funded bailout from both the right, which inexplicably blamed the collapse on “wokeness,” and the left, which is unsympathetic to wealthy Silicon Valley investors as a matter of course.
“Be careful what you wish for” is still a good takeaway from this saga, though. Silicon Valley’s V.C. class should use this rare opportunity to reflect on whether what they’re “founding” and “building” is actually improving the world around them, as they so often claim, or whether they are merely improving their own bottom line at the expense of others. Are they backing and supporting rent-seeking middlemen? Or are they developing tangible products that actually help the average person’s life? We know which side of that line farmers live on. Where the tech venture capitalists of the world want to be is up to them. Things might not go so smoothly next time.
The House should ZERO out the Budget for the Whitehouse to pay for this Billionaire Bailout
Uh, no, I live here and I can definitely say that's not the culture. This USED to be the culture when Silicon Valley was great. Now, it's a bunch of phony woke virtue signalers. That's the real culture of Silicon Valley today.
Except for the fact that it was Silicon Valley technocrats that did the run on the bank…
TNR sez Silicon Valley is too right wing. Hokay. What a nutty article.
Re: 5 - You need to practice discernment. The article had some good points, sadly they will get little traction as TNR is often a left-wing bomb thrower magazine.
Tough chit. FDIC covers the little guy’s losses. That is paid for. Socializing businesses’ loses is not capitalism. There needs to be consequences borne by the stupid chits that made poor decisions. Don’t push the payroll crap either. There are multiple ways to mitigate risk of having cash above the FDIC limit of $250k. If these eff’n people focused on business instead of being woke they would know that.
As detestable as these people are, I think the SVB work around is a good idea.
The SVB losses so far are probably minimal, at least compared to the destruction of all value combined by massive economic fallout to the economy as SVB business depositors have going concern problems due to inability to access their working capitol and cannot make payroll.
Agreed. I worked in Silicon Valley as a consultant in the early 90’s and on and off to my retirement. The culture certainly changed and actually became unbearable to me.
Btt
Correct. I’m nearing retirement and do not keep more than $250K with any single entity. Yeah, it is a little inconvenient, but no more so than diversifying your stock or bond portfolio.
"When this majority discovered that virtually no one in a position of power in either party or with a national voice would take their objections seriously, that decisions about their money were being made in bipartisan backroom deals with interested parties, and that the laws on these matters were being voted by people who had not read them, the term “political class” came into use."
One thing the political class has done a good job at is creating division to keep the people fighting each other, and fomenting tribalism. But we are seeing instances of where ideology is starting to be put aside.
Case in point: the work Naomi Wolf is doing along with volunteers that are Bannon fans with respect to the Covid 'vaccines', and her apology with respect to Joe Biden.
I think the New Republic oversimplifies the attitudes. I think both nominally "Left" and "Right" that aren't in 'the club' realize that they are being screwed by those in 'the club'. The 'Club' exploits the surface differences between thr two.
Think of Lindsey Graham's abortion stunt right before the midterms. Yes, Roe was overturned, sending the issue back to the states, but that stunt was intended to inflame the zealots on both sides of the issue to dampen the swell of MAGA candidates that would 'queer' (pun intended) the trajectory the 'Club' was on. He then goes on to vote for the 1.7 trillion omnibus, binding the House's power of the purse for most of 2023.
Hopefully, those in the 'country class' come together to put an end to it. New Republic might have their eyes half open on this, but its a start.
‘“We’ve reached a point of political division where it’s fine to root for members of another tribe losing their bank deposits—even though you would protect members of your own tribe in the same situation,” he wrote on Twitter. “Be careful what you wish for because the shoe may soon be on the other foot.”’
Shoe’s already been on the other foot for decades, pal. That’s why we hate you.
Silicon Valley’s culture—hyperlibertarian
Libertarian? Uhhh not its not and it hasn't been for a long time. Its hyper woke. Libertarians would not censor and ban and deplatform and cancel with such glee the way Big Tech has. Really, the correct description would be Fascist since they're in bed with and doing the bidding of Government.
the Tesla and SpaceX CEO has purchased Twitter, summarily fired most of its workforce, and then driven it into the ground
No he didn't. He chitcanned a lot of pampered leftist twits who weren't doing anything productive and contrary to predictions of imminent doom from Leftists, Twitter has rolled along just fine without them. He's trying to monetize things and expand Twitter's array of offerings because.....get this.....Twitter was losing $4 million per day before he bought it. He's trying to turn the company around and make it actually profitable....and not just a tool of the government.
"We’ve reached a point of political division where it’s fine to root for members of another tribe losing their bank deposits—even though you would protect members of your own tribe in the same situation,”
Leftists happily cheer on the cold blooded murder of Trump supporters Ashley Babbit and Rosanne Boyland right on video for all to see with no punishment whatsoever for their murderers who were both cops....at a time when the Left had rioted for months over supposed police brutality. Leftists are more than happy to see their political opponents de-platformed, de-banked, thrown out of homes/apartments, fired from jobs, and more for the "crime" of having a different opinion. So now you're gonna express how shocked and horrified you are that a lot of us don't mind seeing you lose your bank deposits? Cry me a river. You started it.
I'll take the win, no matter how ugly.
He did? I wasn't aware that Twitter had been driven "into the ground."
It’s insufferable mostly because how fraudulent it is. Silicon Valley in its glory days was all about merit uber alles. Anyone preaching this D.I.E. nonsense would have been laughed out of the room or worse.
Refreshing paragraph that stands up to Biden's lies... Very unusual for a liberal to tell the truth.
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