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The biggest bank failure in almost a generation explained

“Silicon Valley Bank are dead!" (Apologies to Shakespeare)

Silicon Valley Bank. Not exactly a household name, is it? I don't have a checking account, credit card, or mortgage there. Bet you don't either. Don't dismiss this as small potatoes though. SVB is one of the 20 largest banks in America. It has (had) $200 Billion (with a B) in assets. Now you know.

Evidently, SVB has very few "branches”. A couple in the ACTUAL “Silicon Valley”. And another on Wall Street. Yesterday afternoon, the bank was closed – permanently – by the federal government. Earlier that morning SVB's wall street branch manager called 911 to have his customers arrested. They were lining up in the lobby, and becoming 'unruly' while 'trying to get their money back" before SVB failed. Which, in fact, it did, later that same day.

SVB's own president (Greg Becker) had better timing. Last month he sold 12,500 shares of his personal SVB stock at $287 a share (!!!!). Today those shares are worth zero. Some luck, eh? And just a week or two ago realty TV financial guru Jim Cramer ("mad money") was exhorting his sheep - er, viewers - to buy SVB shares. Hey, Cramer - talk much with Becker?

Clearly SVBs kingpin knows his way around money, even if Cramer is an idiot. And Becker should. He's also a Federal Reserve Board member (San Francisco/Silicon Valley district). Geez Louise – does this look shady, or what?

I withdraw that slur. I'm sure Mr. Becker – if he's ever charged – will have months (years?) of thorough investigation, before government officials decide not to charge one of “their own”. Quick - name a fed governor/bank president who EVER went to jail. Keep googling this, while i move on.

Back to those unfortunate, “unruly” depositors at the wall street branch of SVB. Who the heck deposits millions in a weird bank nobody ever heard of? One with almost no branches? Evidently “wall street traders” and “start up entrepreneurs” with $10 million in cash, and no better ideas. Fortunately, NYC's finest declined to arrest these customers. They left the bank premises quietly. And then were impoverished hours later. Well, that's the job of police, right? To keep unruly bank customers at bay. Their job certainly doesn't seem to be preventing drive by shootings, drug dealing, and carjackings. Do you doubt me? Quick - call 911 right now about the corner meth dealer and see how quickly police come - if at all.

So why did SVB collapse? PBS - our official government news channel - was interviewing “Julia Coronado, economist for the federal reserve” last night. On how great the Biden economy is doing. You know – lots of new jobs; inflation might possibly be tamed soon; tax increases are good. Exactly the sort of thing you'd expect a government economist to say. Then, poor Julia went COMPLETELY off the rails. Unscripted TV. Ms Cornodo - live via a Zoom hookup from her dining room - was ALSO asked about the collapse of SVB – which had happened only an hour before. Was this bank failure going to be "significant”? I'll paraphrase Julia's reply (the entire PBS news hour episode is already available online): “Well maybe. Probably not that much. They failed because of high interest rates and risky loans”.

Wait . . what? High interest rates? You mean like the TRIPLING of fed funds rates over the past year by “government economists” and “federal reserve officials”? Geeze Louise, Julia - you CAN'T say that on live TV! Isn't there a 10 second audio delay, and a censor, like on SNL?

Okay. Let's accept Julia's impulsive honesty at face value. Until her bosses reach out, and she “walks back” her comments. Let's move on to Julia's reason #2: SVB has “risky loans”. Nobody disputes that startups with sketchy cash flow and scruffy management talent are “risky”. That's why “normal banks” - like Chase, Citibank, Wells Fargo, Bank of America – rarely touch the hard stuff. Regulators keep "good" banks away from that kind of risky business. But clearly our regulators DIDNT have qualms about all those risky loans flowing downhill to SVB. Regulators like “the federal reserve”, “office of the comptroller of the currency”, etc.

But there's another side to SVB. One which Julia the fed economist failed to mention. It's a MAJOR, MAJOR crypto currency player. Huge deposits from, and loans to, crypto players like “Circle” (billions and billions). FTX, which has already failed, and IT'S founder Sam Bankman-Fried, Arrested, but free on "mortgage bail".

Why aren't crypto-scam-companies better regulated? Because they make HUGE donations to political officials. Both parties. No foolin'. Check out Sam Bankman-Fried, if you doubt me. That's why he's chillin' at his 'rents mansion, instead of in the hoosegow.

Crypto markets plummeted $70 billion yesterday. Before the closure of SVB was even announced. Bet crypto traders they wish they were better friends with Greg Becker, lucky SVP/president and federal reserve official, eh? Their own timing might have been better if that was the case.

Okay - so here's the important part - especially for people who graduated after 2008. There's been one (and only one) bank failure this century bigger than SVB. The collapse of Washington Mutual in September 2008. Hundreds of Billions – same scale as SVB. How did the stock market react? The Dow Jones Industrial Average declined 40% (from 14,000 to 8,000). Because Washington Mutual was a (big) “canary in the coal mine”. Just like SVB.

More corporate and bank failures are likely. And a major stock market decline. You believe what you want, though. I've been dissin' crypto for years. And now I'm finally right.

Thank you, Ms. Julia Coronado, for appearing on PBS last night to assure us that this probably isn't going to be a problem.

Government economists say the funniest things, no?

This sort of chicanery is why nobody trusts government officials, the media, lawyers, or bankers.
Magnolia21 · 22-25, F
They held bonds, many sold for losses. Their upper management sold off stock days before the collapse. Even still, SBV mostly provided capital for startups, the vast majority of which fail and go bankrupt. The handful of successes either barely made payments or gave the lump sum back, thus removing interest from the equation. The business model seemed good on paper (to somebody at least) but it was doomed from the start.

Now other banks are revealing problems, from deposits not showing up to stock plummets. Seems like a replay of the last financial crisis, where all the banks were investing in each other, and insurance companies were taking out insurance on themselves from themselves. I hope there won't be another crash, but damn, too many similarities to ignore it.
MrBrownstone · 46-50, M
@Magnolia21 2008 all over again.
My understanding is that SBV was a major bond holder, which is disastrous during rising interest rates. Scary that a "financial guru" would recommend purchasing shares knowing the company's portfolio mix.
@SusanInFlorida I didn't read the details, but heard they took a huge loss on their bond portfolio addressing the liquidity problem you mentioned. However, I suspect it's just one factor involved, as the person in the video explaining the problem didn't seem terribly fluent financially. There is usually a domino effect leading to an institution's ultimate collapse. I remember the WaMu collapse well as I worked there for a number of years.
SusanInFlorida · 31-35, F
@BizSuitStacy SVBs loan customers (assets) were predominately risky startups with limited/zero profitability, or opaque crypto deals.

their primary deposits were short term CDs sold to millionaires.

short term deposits covering long term loans to risky borrowers. this is the classic squeeze rational lenders try to avoid at all costs.

since you worked at WaMu, you will no doubt agree that it's long term mortgage "assets" were inappropriately funded by volatile short term deposits.
@SusanInFlorida Yes, in the grand sense. The same way we all die because our heart stops. So, indeed, liquidity risk putting depositers at risk is the common denominator. The circumstances leading to the collapse of each are both fascinating and different.
AthrillatheHunt · 51-55, M
The first domino to fall rarely gets the attention it deserves .
I guess they WEREN”T too big to fail. Lol
whowasthatmaskedman · 70-79, M
I will give you a "B+" on your analysis there. Quite accurate and impressive. The numbers and exposure to cryto (which no bank has any business being within a mile of) are spot on. Your point on a lack of regulation is also well made. But rather that sheeting this home to the current administration, maybe a note the deregulation goes all the way back to Reagan and was accelerated by Bush 1, while Bush 2 orchestrated the bank bailout..Rising interest rates and defaults on loans are the standard risks all banks take and factor in.. So clearly this bank had no business being in the industry.. It does however provide a good example of the lag between an economic policy and its fallout in industry. One administration often benefits from the changes made by the previous one...😷
SusanInFlorida · 31-35, F
@whowasthatmaskedman please show me any situation where government regulators turned out to be smarter than the people/organizations they were charged with monitoring.

it's the nature of public sector employment to attract "talent" with lower expectations and skills than the private sector is willing to hire.
whowasthatmaskedman · 70-79, M
@SusanInFlorida Smarter? You got me. I absolutely cant..But more ethical is the key. And that can and has been disabled by putting corrupted people in charge, and bu underfunding the operations so they cant perform to regulation. Or as we saw recently on the railroads, putting a poison chalice in the regulation to allow it to be overridden or cancelled..
The corporate leaders have a duty to shareholders to maximise profits. Thats all. The regulators are there to see the interests of the people are not harmed ion that endevour..😷
After 2008, when the US used the privatized housing market to crash the global finance markets, everyone looked on in horror as Americans imposed uncertainty, debt and austerity everywhere, globally.
And then we bowed lower and gave war a blank check, closed all the borders to people and opened the earth to NATO.
Told you so. Smirking Murkans do this on purpose.
SusanInFlorida · 31-35, F
@Roundandroundwego is there a website that substantiates this
I think… a few more billion to the 3rd most corrupt country should bail out the banks…
SusanInFlorida · 31-35, F
@TheOneyouwerewarnedabout which is the "third most corrupt country"?

North Korea?

please help me out here.
MrBrownstone · 46-50, M
So Biden's economic plan is a joke?
TexChik · F
@MrBrownstone To destroy the US economy , Federalize all properties, and force us into socialism?
RileyDay1993 · 26-30, M
Dont trust the porn industry either.
SusanInFlorida · 31-35, F
@RileyDay1993 they survived the pandemic. and teachers - by the hundreds - are leaving their profession for significant increases in income as "only fans" stars.

(this post is both true, and a satire at the same time. i do not endorse porn production or consumption)
GJOFJ3 · 61-69, M
Very well written

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