The Silicon Valley Bank Debacle Was Built on a Hubris We Have Seen Before
The hills are alive with the sound of illusions falling like dead fish onto a pier. The proud, entitled princes of the tech world have proven to be babes in the financial woods. The collapse of the Silicon Valley Bank had them jettisoning libertarian disruption in favor of abject pleading for bailouts, lifeboats, and all manner of conventional corporate socialism. Compared to these honkers, Dick Fuld at Lehman Brothers went out with dignity and grace.
And the capper was delivered by the insufferable Larry Summers, who emerged from the luxurious shadows of his own ego to intone:
It is a clear imperative that all #SVB segregated assets and uninsured deposits be fully backed by Monday morning.— Lawrence H. Summers (@LHSummers) March 12, 2023
Also imperative that sufficient support be provided to other banks to insure full availability of deposited funds across the banking system. 3/
May I say, with all due respect and as precisely as I can, to the Charles W. Eliot professor and president emeritus of Harvard University: Please to be pissing off now, I think we've all heard enough from you.
Instead, David Dayen, executive editor at The American Prospect, has taken it upon himself to demonstrate in a series of tweets how the whole mess was completely avoidable and could have been avoided, if only the tech geniuses had known what the fck they were doing. Dayen told the electric Twitter machine that there was a private avenue available for the libertarian geniuses to protect themselves of which, for whatever reason, they declined to take advantage.
“There’s something called Insured Cash Sweep. It essentially cuts up your large account if you’re a business into insured pieces, $250k each. In the event of a run, those deposits over the limit are safe.”
Moreover, VCs today are either lying that all uninsured deposits are at risk, in effect lighting a match in a petroleum factory to get a government guarantee, or worse, these masters of finance *don't know* about how to insure larger deposits. So the conclusion is 1 of 3: the whole of Silicon Valley has no idea how to run a competent business; there was some financial chicanery that led to a requirement to bank at SVB without an ICS backstop, [or] this is all a Big Lie to engineer a bailout.
Will it harsh Summers' mellow even further if I suggest that I believe we will find all three of Dayen's surmises are correct, because that's the way this particular class of genius rolls? To be brilliant at one thing means you must be brilliant at all things—that's the creed, the primary article of faith. A similar cult of self-aggrandizement enveloped the financial services industry in the last decade of the 20th century and into the first decade of the 21st, and that one also came to misery and took far too many outside the cult there, too.
So we find ourselves, again, in the political netherworld of bailout culture. From the Washington Post:
Federal officials said the money being used to aid depositors will come from an insurance fund that banks, rather than taxpayers, pay into. That’s a key difference from the 2008 bank bailouts. (Those bailouts ultimately made money for taxpayers.) But criticism is already afoot. “Now is not the time for U.S. taxpayers to bail out Silicon Valley Bank,” Sen. Bernie Sanders (I-Vt.) said in a statement, per our colleague Tony. “If there is a bailout of Silicon Valley Bank, it must be 100 percent financed by Wall Street and large financial institutions. We cannot continue down the road of more socialism for the rich and rugged individualism for everyone else.”
All of the masters of the universe think the same, no matter which particular corner of the universe they dominate. And they all screw up the same. (Dayen specifically calls out Roku and its executives: “Having half a billion dollars in one bank is the dumbest thing I’ve ever heard.”)
And they never learn anything. From CNBC:
Silicon Valley Bank employees received their annual bonuses Friday just hours before regulators seized the failing bank, according to people with knowledge of the payments. The Santa Clara, California-based bank has historically paid employee bonuses on the second Friday of March, said the people, who declined to be identified speaking about the awards. The payments were for work done in 2022 and had been in process days before the bank’s collapse, the sources said.
They never, ever learn.
From: Esquire US