Neil's avatar
$38.4m follower assets
Silicon Valley Bank
Silicon Valley Bank COLLAPSE Could Have Been Avoided

You've probably heard of the "collapse" of #SiliconValleyBank, especially if you're in the tech space (check your contract, the money is probably coming from that bank).

What's the issue?
The #FDIC insures your account up to $250K. Which makes no sense for business accounts that usually hold millions of $.

The Bank Run.

Everyone is looking out for themselves. Everyone is looking out for their portfolio companies, and this is why this went from 0 to 100 so quickly. Because you don’t want to be left behind.

Those that are loyal to SVB and didn’t take their money out, are out of luck right now. Those that we’re “selfish” and got out, are in a good position.

Of course, when the CEO says, "Stay Calm", don’t panic or this could get ugly. Things get ugly pretty fast when you see doomsday headlines popping up and then the Founders Fund adding fuel to the fire.

I’ll say it again, this whole thing could have been avoided.

As you’ve probably read or heard by now, the way out of this is by basically Powell/Yellen saying that the depositors will be protected. Just by saying it, it will calm everyone. And this better happen before the market opens by Monday.

Because if it doesn’t, nobody is stopping anyone from doing a bank run nationwide.

You’re basically creating a problem out of thin air and that problem will suddenly grow into a huge one.
Start-ups will go bankrupt, people are out of jobs, and bills won’t be paid, this includes rent, mortgages, etc...

In a way, this IS what the FED wants because it will slow the economy but this will not only slow the economy, this will destroy years of innovation past, present, and future.

Talking about the FED. Powell, and Yelen. What are they doing? How could this have gone under the radar?

SVB did what the FED basically told banks to do. They bought bonds (Long Term ones in this case) which for SVB did not make much sense because start-ups aren’t long-term depositors so buying long-term treasuries makes no sense.

Now, when interest rates go from 0% to 5% at record speed. The bond that you bought before is now worth much less.
If you don’t act on the fact that interest rates are going up fast, you’re not doing your job correctly. Especially not when you know that your business is getting fewer deposits and your customers are burning more cash (faster).

So going back to Powell and Yelen.
What were you doing? What are you going to do right now?

First, they tried to convince everyone that #inflation is transitory, and then when that backfired they started to raise rates at record speeds.

So why didn’t they do their job and check that a TOP 20 bank, TOP 20!!! Was doing ok?

Of course, you could say that this would have never happened if there was no run on the bank and probably you would be correct.

But still, SVB had no business having long-term bonds while catering to these highly volatile and cash-burning clients, and people like Yellen should have seen this coming.

This is of course a simple way for everyone to understand what has happened.

There's a lot going on right now, and I assume we will get even more information on Monday before the stock market opens.

Jonathan Garcia's avatar
I had the same thought about SVB doing what the Fed wanted. But one important point is they didn’t hedge. It reminds of what one of my professors said about the GFC. The government wanted financial institutions to buy MBS. They provided incentives to buy MBS and in some cases, required that a certain percentage of high risk MBS be bought. So I think it’s just like before. In a way, government is to blame.



Already have an account?