Peter Thiel's Founders Fund pulled cash from SVB before collapse: Report

the underlying issue was that SVB knew they were f'd and so they were begging VCs to stop taking money out because they knew they couldnt cover and those VCs turned around and pulled money faster, because that is what smart money does.

SVBs bargaining chip was that the VCs wouldnt want the books being opened, which is what happens when the fed takes over, but the VCs called their bluff, because they figured they were well enough insulated from any potential fall out.

this is america, so we have the keating S&L scandal, ltcm, enron, worldcom, countrywide financial, 2008. the game never stops.

In fact, it's probably true of pretty much every bank every day, since this is partial-reserve banking. If everyone wants their money back, NOW, the bank doesn't have it, but in normal banking, the institutions can be stable for centuries.

SVB put themselves in a somewhat bad situation by heavily concentrating the high levels of deposits in 2019-2021 in long-term treasury bonds (which would not have been permitted had not the previous administration not rolled back Dodd-Frank regulations, in no small part due to the lobbying of SVB's CEO).

So to service the net withdrawals that started earlier this year (lower levels of VC investment and higher expenses in the concentrated startup community SVB served), after the big interest rate increases, they had to start cashing out their T-Bonds at ~80% of face value. This lead to need to raise new capital, which reduced confidence in the bank...

Had everyone, including Thiel, stayed calm instead of Thiel yelling "FIRE!!", it is entirely likely that it could have been at least calmly wound down or sold.

It's kind of like crossing thin ice. If you can keep your weight spread over enough surface area with no mis-steps, you can get across just fine. But if you take one wrong step focusing the pressure at one spot, you are now in the freezing water with a life expectancy of minutes if you are helped.

The rationale presented alongside the urging to pull out doesn’t have to be fabricated, just hypothetical. That the risk become real as a consequence of being suggested is potentially interesting, but ya know.

How this is managed is by making sure you have enough capital on hand or in assets you can liquidate immediately to cover customer withdrawals, which wasn't possible for SVB because 20-30% of their total customer deposits were leaving each day by the end. In that regard it is true that the bank run caused the failure. However, what caused the desire to get out is bad management at the bank and unrealized losses because the bank had a large portfolio of mortgage backed securities they weren't required to mark to market (thanks dumb regulators) and the loss on them from the sudden increase in interest rates was large. In addition they had a very large portfolio of loans to startups that were questionable given the massive shift in that market so there really is a big question mark on how many billions that portfolio would be down which makes it really questionable whether the bank was actually solvent or not and that drove the panic to get out.

So the correct answer here is the regulators screwed up allowing losses to not be marked to market, the bank management screwed up exposing themselves to a very risky duration mismatch and very risk asset mix and when the bank customers figured it out they caused the bank to officially fail by trying to protect their assets by moving them elsewhere.

The answer to this question is a resounding "yes." As far as I can tell, the prisoner's dilemma, as well as a wide-spread ignorance of it, can pretty much explain the totality of human behavior.

These people are led by propaganda. Modern banking is evil and the fact we put up with "losing lotteries" like this is so despicable.

This is potentially going to be a problem for other banks (although SVB seems to have been unusually susceptible), as when interest rates are so high but banks can’t afford to pay anything like that on deposits (because all their loan book and much of their bonds is at lower rates), there will be a lot of cash flowing out of banks into treasuries…

It's part of a general sliminess that is and always will be a part of corporate finance, and that sounds quite reminiscent of narcissism: when we're doing good, it's because we're super smart, innovative, good, and hard working (oh and that means we should keep all the rewards); and when we're doing bad, it's because other bad and silly people have done it to us, we did nothing wrong and are blameless, and we're the victims (oh and that means we should be bailed out at everyone else's expense).

Never forget 2008. None of them have paid for it yet.

And by the way, without commenting either way on their politics, a handy trick anyone can use to determine if a behaviour is narcissistic, is to ask "if this position came from the mouth of Trump or Trudeau, would it sound like them?".

Imo the question isn’t whether Thiel privately emailed founders advising them to pull money but whether they made a decision to leak their advice to the press to incite broader panic (eg how did Thiel’s advice make it into the headlines to begin with? who tipped off reporters?)

There is plenty of evidence that Founders Fund wanted to fan the flames: a Founders Fund partner literally published a “some VCs are saying to pull money out” the night before. Not sure how anyone can read this and think there was no intent to broadcast panic.

https://www.piratewires.com/p/some-vcs-advising-founders-to-...

In "It's a Wonderful Life", the bank has the money, but not right now. If the depositors all wait, then they'll all get their money. If they do a bank run, then the first movers get their money, and the rest get left with nothing, as good assets get liquidated at heavy discounts in a fire sale. So compared to waiting, the bank run is negative-sum to the depositors in aggregate, and zero-sum to the first movers. (It's positive-sum to Potter, who wants to buy the bank's assets at a discount.)

In either a mark-to-market or a net-present-value sense, the SVB doesn't have the money. When interest rates increased, their long-term bonds lost value. The hold-to-maturity accounting treatment saved them from reporting that, but that accounting is a fiction; it's a real economic loss, same as if they'd lent to a bankrupt startup. If the depositors all wait, then they'll get the right number of dollars in ~ten years, but those dollars will be worth less by then. So a bank run is positive-sum to the first movers, who can get their dollars now and buy Treasury bills at five percent (or put them in a better bank, or wherever else). It's roughly zero-sum to the depositors in aggregate. That makes a bank run relatively more attractive.

I think there's confusion because in both cases, "if you wait then you'll get your money". They're completely different reasons to wait though, the first economically rational, the second not.

Hate to break it to you, bank runs have been a thing for hundreds of years. This isn't new. You put your own money at risk by participating.

One of Elon's biggest achievements is normalizing demonizing "the shorts". In this case the Bank took took much risk and was insolvent; the shorts would be right.

I’m surprised this is news so recently after a financial crisis. When the CEO of the bank starts pleading for deposits to stay, you wire out.

there is one possible way to solve the coordination problem: just stop allowing withdrawals. the chinese figured this out. but you have to limit withdrawals on ALL banks because you bet your ass if one bank gets frozen, everyone will think another one is next and run that one too.

the only time we've rushed a serious contagion before was by instituting a bank holiday and basically putting in 100% deposit insurance. and that was when we had someone in charge whom most people trusted (FDR). biden, yellen, powell aren't so loved.

A very interesting risk in hind-sight, but unlikely to be a wide-spread issue.

There is nothing to weaponize. If we taught the basics of finance everybody would know that the money you have in the bank is not yours but they are a IOU from the bank.

And if you wire them out to another account that you hold with another bank that is going to still be an IOU aelbit from a different bank.

The only true and true money guaranteed by the Federal Reserve is the Federal Reserve Note. All the rest is an IOU.

We accept to deal in IOUs because physical transportation, storage and protection of physical notes would be a nightmare, but still the nightmare can AND WILL show up for somebody randomly in the sample of participants in the form of insolvency of the banking institution issuing their IOUs.

It's all very clear and also the reason why some people refuse to deal with banks and opt for cash transactions and metals. Not to mention the hard assets such as water, gasoline, weapons, animals, vehicles, real estate etc.

These people seem loons 364 days out of 365, but there is a reason why evoloution put that seed thought inside their brains.

Advised his companies to withdraw on Thursday, bank shutdown on Friday

It was probably also a smart move to remove the funds, but I'm not sure it was sensible for someone with his level of influence to encourage a bank run. Even if you believe a bank run is likely telling people to withdrawal their funds doesn't solve the problem that some people will be too late. If you want to help you should try to ease nerves if anything.

Regardless, he definitely helped contribute to its collapse, as well as everyone else who took their money out of the bank during the run. To what degree is Peter Thiel responsible? I don't know and I don't think it really matters.