Don’t Blame Depositors For Bank Failure, Blame Biden And SVB Management
It is important to realize that SVB’s failure was not due to risky startups doing risky startup activities.
It is painful to see so many intelligent pundits, politicians from both the right- and left-leaning parties buy into a media narrative that blames others. “wealthy speculators” Or “tech bros” Venture capitalists to help solve the banking crisis that eventually started in Washington. Let me Please explain.
If you want to understand the context for the crisis, look at the Federal Deposit Insurance Corporation chair’s March 6 testimony — a week before Silicon Valley Bank’s collapse — where he explains that banks were sitting on $620 billion of unrealized losses from long-dated bonds. This was the spark for the crisis.
SVB ignited the match. Announced on Wednesday, March 9, that it had effectively sold all of its available-for-sale securities and needed to raise fresh capital because of large unrealized losses from its mortgage bond portfolio.
The financial press extensively covered Thursday morning reported SVB needed new capital and short sellers were everywhere. The CEO’s catastrophic failure “don’t panic” The bank’s decision to call the bank later in the morning only raised fears and degraded confidence.
One idea is all that’s needed “non-public information” Populist demagogues are selling drivel to make it clear that SVB was in danger. Anyone who can read The Wall Street Journal and watch the stock ticker would understand that there is no upside to waiting to see what happens next.
The run on other banks began by Friday. It was made abundantly clear when regulators placed Signature Bank under receivership and announced a backstop facility to First Republic. This temporarily stopped trading in regional bank stocks Monday. Even Schwab trading was temporarily halted.
Some untrustworthy reporters and political types even claimed that I caused it through my tweeting. You must think they believe I’m Superman. Maybe E.F. Hutton. As I have already explained, timing is not in sync.
Some reporters and politicians are constantly searching for scapegoats in the never-ending search for them. @theallinpod This could have contributed to the bank panic. We didn’t publish until Saturday morning because banks were closed. I also never tweeted about SVB until it was already in receivership… https://t.co/ryRP3qx0Kl
— David Sacks (@DavidSacks) March 13, 2023
The Fed had to take decisive action once the bank ransacked began. Protecting deposits (uninsured is 50 percent) and supporting regional banks was what this meant. These measures were essential to avoid a more severe economic crisis, however unpleasant you might find them.
SVB’s demise was due to poor risk management and communication. It should have hedged the interest rate risk. It should have raised capital in a timely manner, and not spook the streets.
SVB is not entitled to a bailout, and won’t be getting one. SVB’s stockholders and bondholders are being wiped out. These executives may spend years in court and have stock sales reversed. Anyone who thinks there is a “moral hazard” You aren’t paying enough attention.
It is important to remember that SVB’s financial failure was not due to risky startups doing dangerous startup things. SVB was exposed to boring mortgage bonds that were safe when they bought them. Maybe this is why SVB owned an “A” Moody’s had awarded it a rating and had passed all its regulatory tests.
What caused the mortgage bonds to become toxic? We’ve witnessed the fastest rate-tightening cycles in decades. It is easy to see how rapid rate rises can lead to unrealized bank losses.
So, what is causing the rapid rate rises? This is the worst inflation in 40-years. What caused this? Profligate spending and money printing coming out of Washington — all while Joe Biden, Janet Yellen, and Jerome Powell assured us inflation was “transitory.”
Two years ago, I warned against the unpredicted and dangerous experiment of pumping trillions into an already hot economic system. But this was Bidenomics.
Bidenomics means injecting trillions of dollar of stimulus into a riproaring economy. I won’t pretend that I know what the next step will be. This is the first time we have tried it.
— David Sacks (@DavidSacks) April 2, 2021
Joe Biden should look in the mirror when he says he will hold those responsible for this mess accountable. However, I am certain that this is not going to happen. I also know that the hunt for scapegoats has just begun.
David Sacks, an entrepreneur and author, specializes in digital technology companies. He was co-founder and general partnership of Venture Capital Fund Craft Ventures, and the founder and COO of PayPal.
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