Ben Shapiro: Here’s Why Silicon Valley Bank Collapsed

Silicon Valley Bank collapsed due to poor decisions made by senior management. However, the Biden administration’s terrible economic handling helped to prevent this historic failure.Ben Shapiro made the following statement on his blog podcast Monday. 

Shapiro, best-selling author and Daily Wire editor, said that deficit spending, which drove inflation and prompted interest rates hikes by Federal Reserve, and poor investment strategy by bank led to the bank’s collapse. SVB had $200 Billion in deposits at the close of the first quarter 2022. This was a significant increase from the $60 billion in 2020. Shapiro said that this is due to more money being inducted into the U.S. economic system than any other time in American history.

“A lot of that money went to firms that didn’t know where to put the money and so they started shoveling it into tech,” Shapiro stated, adding that the technology was “very promising”. “boom” It looked very much like the 1999 tech bubble, which saw unproven companies valued at ridiculously high levels.

SVB Banks ended up with huge amounts of flowing cash and a hefty balance sheet.. SVB and others borrowed money from other ventures, and then bought bonds and stocks. Shapiro stated that banks always make money by investing their deposits. Banks need to offer more than they promised their depositors for a higher return on their investment money.

“So what exactly did SVB Financial do with this massive influx of cash?” Shapiro asked. “Well, they started buying tens of billions of dollars of seemingly safe assets, primarily long-term U.S. Treasuries and government-backed mortgage securities, which means that SVB’s securities portfolio rose to about $27 billion in the first quarter of 2020 to $128 billion by the end of 2021.”

These investments were damaged by inflation and subsequent Federal Reserve interest rate increases, which caused their value to fall. The government will issue bonds at higher rates to wipe out the market for lower-rate bonds. SVB will continue to hold the long-term notes even if inflation reduces their value.

When word spread about the bank’s position and depositors demanded their money back, the bank could only sell their long-term Treasury notes and government-backed Securities at a discount that resulted in huge losses and ultimately led to SVB’s collapse.

“And so suddenly, if everybody goes to the bank at the same time you have the Mary Poppins scenario, right?” Shapiro said. “Everybody goes to the bank at the same time. It’s a run on the bank and everybody freaks out because they have to shut the windows. There actually is no money at the bank.”

SVB, the 16th largest lender in the United States, went bankrupt on August 16, 2008. This was the worst bank failure in the nation since Washington Mutual in 2008

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“From Ben Shapiro: Here are the Reasons Silicon Valley Bank collapsed“

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