And as a cherry on top, no depositors lost anything. I guess the losers are everyone else who get to eat inflation with nowhere to escape it.
The management of SVB messed up massively, and some VCs noticed. They would have been every bit as insolvent if the VCs in question had kept their mouths shut, and if rates went higher they would have been even more insolvent, on account of being massively short interest rates.
SVB likely would have made it through the immediate term if companies did not pull out money en-masse. However, they were in fairly dangerous territory no matter what, and highly susceptible to the ongoing pattern of declining deposits (as burn rates remain high but new capital is not being injected at the same rates it was 18 months ago).
All that said, there were companies (not VCs) flagging SVBs risk on the weeks and months prior to this incident. Some were already pulling money out, albeit much more slowly.
The very nature of bank runs is that as soon as the fundamental trust that we can withdraw tomorrow is gone, everyone wants to withdraw today. That can, as we just saw, happen in a very short period of time. Once that happens, it is objectively in each individual party's best interests to get money out.
So sure, you could say that everyone should have just stayed put and not reacted. But in doing so, you'd be asking depositors in a bank that just announced they were unable to meet liquidity obligations to keep their money where it is, and that as long as everyone else did the same, then we'd all be fine, knowing that:
1. We would still likely have faced problems in the months and quarters ahead, and 2. That if enough of them did not heed the advice, you'd be caught holding the bag and unable to pay employees or vendors
So I'm not quite sure what those blaming VCs were expecting here. Would you leave your money in a bank with demonstrable liquidity issues?
They are such bad actors, their words were all pretending this is something bad, but their actions weren't to recapitalize the bank but to let it blow up intentionally, while spreading FUD. They made a very successful gambit here that they could blow the system up to get what they want (rate hikes stopped). And they won with that gambit.
If they get away with this, this gambit to them was totally worth the risk that the Fed won't chicken out.
It's a case of murdering and keeping the inheritance.
If I were the Fed, I would see this as a jackpot that finally the rate hikes are creating deflation in the best possible location and continue straight ahead. This is even better deflation than you can get by rising rate hikes for everyone.
What are you talking about? What possible interest would they have in killing the by far best capital partner they've ever had (and maybe will ever have had)?
The death of SVB makes things significantly harder for VC and startups in the future.
As I understand it, VCs manage pools of money that are structured as limited partnerships. Each pool has an investment objective, and presumably “recapitalize a failing bank” is not one of them. Any VC who did this would probably have been sued by their investors.
It only takes one of them to do this calculation and take the gambit, and the rest of them just follow because they have to.
The shitty bank choices were independent mistakes, and were the major mistake. But the reason it blew up so strongly is because key players had an interest in a blow up.
I keep saying this, but "The management of SVB" was a core part of the VC ecosystem. These weren't remotely separate entities. This bank was being run like a cartel, not a competetive service provider in an efficient market. And the VC's were, 100%, in on it. Exactly how, I suspect, is going to be revealed in the coming months.
Imagine you run a largish financial company. Over the course of a year or two, your customers like your service and ask you to hold on to a few tens of billions of dollars for them. And they only ask for 0.20% interest. Wow!
You could invest this money in the usual money-market things (short term treasuries, etc), and earn very little money. Still plenty in the grand scheme of things (you're multiplying by tens of billions!), not you see dollar signs in your eyes and want more. And you look at the yield curve:
https://home.treasury.gov/resource-center/data-chart-center/...
Wow, you can get 2% net if you buy long-dated treasuries, and 2% of tens of billions is hundreds of millions of dollars a year! And those dollar signs in your eyes get really big and you ignore the fact that this shiny yield curve is in part because no one sensible actually expects rates to stay low forever. And you also think "wow, this is such a good deal that I'm not going to think about the fact that a long-dated treasury is also a short bet on interest rates". So you decide to pull the trigger and buy these things with customer money.
And then the plot actually gets a bit nefarious, because you discover that this will violate Basel III. So you lobby Congress to exempt you, and you succeed, and you go for it. And you make a killing, at least until it blows up completely.
(The whole "liquidity" story is a red herring here. If SVB had been solvent, liquidity would likely have appeared. But SVB was actually insolvent, and no one really wants to lend money to an insolvent institution.)
If the VCs had actually been paying attention, I bet some of them would have said to their portfolio companies "here are a few million dollars in capital -- kindly store it in a Basel III-compliant bank or maybe a money market operated by one of the big players" and not "SVB is down the road and they're great!". Because the VCs were not playing the "screw up the Fed's monetary policy next year" game -- they were playing the "throw lots of money at portfolio companies and hope some of them make it big" game.
the shot across the bow for other banks was "no investor bailout." in short, this isnt 2008, we will continue to de-escalate quantitative easing through rate hikes, and we arent above letting these banks fail spectacularly in the future with a cold indifference. Your landlords humbly insist upon the crow for supper.
Boom and busts are created by central bankers manipulating the money supply and not by the market players that act on their natural interests. Central banking is hubris pretending to know how much money an economy needs. It’s a dead end of an economy policy. It only serves governments running their deficit and those who run unsustainable businesses.
Today it is VCs tantrum. It's actually ridiculous. We've reached the point where the riskiest sector in the financial system gets to cry and get rewarded for bad behavior and self destruction.
This isn't a problem of a strong Fed in control choosing what to do. It's a problem of a spineless Fed that gives in to manipulation. It isn't a problem of central banks manipulating, but being manipulated.
Once the financial system realized it's in their own interests to be fragile, it was game over. They will keep on holding everyone hostage.
Unless we figure out how to rescue the hostages without paying the kidnappers, this will continue happening.
(Well maybe Peter Thiel is that smart. But not the rest of them.)
The middle class eats the entrenched inflation.