Although I didn’t enter the weekend thinking that I’d write about this situation, having written two articles on the topic, I will probably put together some thoughts tomorrow.
For now, I will just point out that the following statement from the press release is disingenuous at best:
“No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”
Costs of bailing out uninsured deposits will come from a special assessment on all solvent banks. This assessment is a socialization of losses, borne by other banks and that is a cost to the real economy.
Also, the Fed announced that it will make loans to banks against fixed income securities with market value deeply below par (due to rising interest rates) *at par*:
It’s like getting a mulligan. If you have a pile of long duration fixed income securities on your books classified as “held to maturity”, and you need liquidity, no worries, the Fed will pretend the securities are currently worth par and loan you the money for up to a year.
Make no mistake: tonight, the federal government announced a massive bailout for the VC industry.
BTW, isn’t it odd that all the MSM stories about the failure of signature that I’ve read don’t mention that Barney Frank was on that bank’s board since 2015? Yeah, that Barney Frank of Dodd Frank fame. Must just be an oversight.
Barney Frank is on Signature's board and that bank is one of the leading crypto banks out there. I hope CNBC or some news program is able to interview Charlie tomorrow morning. He might have some interesting thoughts on crypto banks and Barney Frank's "lack of oversight" at Signature.
"Bailout" is a dirty word right now, but that's what will happen.
The Empire's wars must go on and cannot be questioned. At the same time, labor must be brought to heel and rich people cannot be allowed to lose money.
it's even worse in Canada with only 100k cad secured or 60k USD. they are cheap. but some banks and brokera have insurance although that is shared among all depositors..the only real protection is choose your banking partner based on strength.
His comments don't even make sense. If, as you stated, it's not the individual CFO's issue that these funds were parked at a single bank, then how is it the OCC's fault? There is no personal responsibility, but only government responsibility? I'm a hardcore libertarian (actually further than that), and this argument doesn't hold water for anyone claiming to be for "capitialism" or economic libertarianism. I hope all the little statist wannabes go bankrupt after that tirade.
If liquidity continues to dry up this week, the "machines" could really start selling stocks. Get your cash ready rationale friends, because buying time might be upon us. We save our cash and are disciplined in our investing criteria for moments just like these. The absolute best investments that I have ever made happened the first 3 months of 2009 and May/June 2020. When others are fearful, BE GREEDY.
Come on. Get real. You know the government is going bail these people out. They're rich and would do just fine without a bailout. Next, start watching for the next round of startup shutdowns and associated layoffs. Those are going to happen anyway, and, if anything, the government bailout will provide an incentive to do the shutdowns sooner rather than later.
Excellent article. Uninsured depositors play a role in the banking system by providing what used to be called "market disciple"--that is, if they have sufficient cash to be depositing $250,000, let alone nearly $500 million in a bank as did Roku, they should have an ability to review the safety and soundness of the banks they choose to fund as well as the sense to diversify their banking relationships.
I found you via Rudy. Your post is one of the most rational, lucid takes on the SVB collapse I’ve seen. I spent my career in SV including being an early employee at several startups. While I can empathize with employees who will lose their jobs (I once quit a perfectly good job at a small, stable, publicly traded software company to join a startup, only to lose my job 2 months later when the company shut down), that is no reason for taxpayers to bail these companies out. It’s well known on Sand Hill Road that 90% of venture backed companies fail. A good purge is needed in tech. This is no different from the purge that happened with the collapse of dotcom. I had a front row seat through all of it. And lost my job as well. It sucked, but I did find another eventually through my network. Good people and good companies will survive this. Oh, and not a single company asked for a bailout, and over indulged billionaires did not go on TV and whine as proxies for VCs.
I was in tech in the SV during the dot com boom. There was a lot of churn back then and there were failures but people seemed to suck it up better than in the current environment. I haven’t been part of that world in a long time so I’m on the outside looking in when it comes to my impressions.
FDIC has put SVB up for auction with results scheduled to be announced tonight (Sunday) night. Wells Fargo should tell the government "powers that be" that they will buy SVB in exchange for being removed from the "not allowed to grow bigger" penalty box. Best time to negotiate is when you have some leverage, as they say.
The kids crying for an ice cream this weekend are no different than the kids crying for ice cream during the GFC. George Carlin said it best, “iTs a big club and you aren’t in it.” The wealthy VCs will be made whole. Just like the fat cat bankers on Wall Street. The little guy/gal will be screwed.
For decades, it has been far easier than purchasing treasuries to lower risk to the FDIC insurance limits. Almost every bank of any size, and certainly SVB, has a treasury management service called an automated sweep. The CFO establishes a collected balance target for the operating account, and at the end-of-day, any balances in excess of the collected target is invested in various products the CFO may choose from. Yes, including US Treasuries. The automated sweep costs hundreds of dollars per month and can be paid for in offsetting account balances. This is basic short-term cash management. To be otherwise exposed is simply 'criminal' for a CFO.
These people like Bill Ackman, Gary Tan, Mark Cuban and many other just don't have a clue.
I think you are being too kind to those guys. They are almost certainly fully aware of this but choose to obfuscate the real issues for their own interests.
You are probably correct, but I did trade some comments with one of the three regarding their vision for an alternate PPP. I have to say I don't think they understand how banking works at a fundamental level.
That seems like a "them" problem. If one doesn't understand something as basic as this, imo, they shouldn't be in charge of running capital. I know this and I'm just some stupid engineer that regularly exceeds the max short term capital losses. If I can figure that out, they have no excuses.
As suspected, a bailout of SVB (and newly failed Signature Bank) was announced tonight:
https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312b.htm
Although I didn’t enter the weekend thinking that I’d write about this situation, having written two articles on the topic, I will probably put together some thoughts tomorrow.
For now, I will just point out that the following statement from the press release is disingenuous at best:
“No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”
Costs of bailing out uninsured deposits will come from a special assessment on all solvent banks. This assessment is a socialization of losses, borne by other banks and that is a cost to the real economy.
Also, the Fed announced that it will make loans to banks against fixed income securities with market value deeply below par (due to rising interest rates) *at par*:
https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312a.htm
It’s like getting a mulligan. If you have a pile of long duration fixed income securities on your books classified as “held to maturity”, and you need liquidity, no worries, the Fed will pretend the securities are currently worth par and loan you the money for up to a year.
Make no mistake: tonight, the federal government announced a massive bailout for the VC industry.
BTW, isn’t it odd that all the MSM stories about the failure of signature that I’ve read don’t mention that Barney Frank was on that bank’s board since 2015? Yeah, that Barney Frank of Dodd Frank fame. Must just be an oversight.
Promised rant/article is posted: https://rationalwalk.substack.com/p/yet-another-bailout
Is there no way out of this crony capitalism?
Barney Frank is on Signature's board and that bank is one of the leading crypto banks out there. I hope CNBC or some news program is able to interview Charlie tomorrow morning. He might have some interesting thoughts on crypto banks and Barney Frank's "lack of oversight" at Signature.
Odd that the msm articles don’t mention Barney Frank in the coverage tonight. Must be a weird oversight …
"Bailout" is a dirty word right now, but that's what will happen.
The Empire's wars must go on and cannot be questioned. At the same time, labor must be brought to heel and rich people cannot be allowed to lose money.
I am in higher ed so I know cringe. This was cringe.
it's even worse in Canada with only 100k cad secured or 60k USD. they are cheap. but some banks and brokera have insurance although that is shared among all depositors..the only real protection is choose your banking partner based on strength.
"There is no point in freedom of speech if you will not put skin in the game." -- Great line (I will be using it)
His comments don't even make sense. If, as you stated, it's not the individual CFO's issue that these funds were parked at a single bank, then how is it the OCC's fault? There is no personal responsibility, but only government responsibility? I'm a hardcore libertarian (actually further than that), and this argument doesn't hold water for anyone claiming to be for "capitialism" or economic libertarianism. I hope all the little statist wannabes go bankrupt after that tirade.
If liquidity continues to dry up this week, the "machines" could really start selling stocks. Get your cash ready rationale friends, because buying time might be upon us. We save our cash and are disciplined in our investing criteria for moments just like these. The absolute best investments that I have ever made happened the first 3 months of 2009 and May/June 2020. When others are fearful, BE GREEDY.
Come on. Get real. You know the government is going bail these people out. They're rich and would do just fine without a bailout. Next, start watching for the next round of startup shutdowns and associated layoffs. Those are going to happen anyway, and, if anything, the government bailout will provide an incentive to do the shutdowns sooner rather than later.
Excellent article. Uninsured depositors play a role in the banking system by providing what used to be called "market disciple"--that is, if they have sufficient cash to be depositing $250,000, let alone nearly $500 million in a bank as did Roku, they should have an ability to review the safety and soundness of the banks they choose to fund as well as the sense to diversify their banking relationships.
I found you via Rudy. Your post is one of the most rational, lucid takes on the SVB collapse I’ve seen. I spent my career in SV including being an early employee at several startups. While I can empathize with employees who will lose their jobs (I once quit a perfectly good job at a small, stable, publicly traded software company to join a startup, only to lose my job 2 months later when the company shut down), that is no reason for taxpayers to bail these companies out. It’s well known on Sand Hill Road that 90% of venture backed companies fail. A good purge is needed in tech. This is no different from the purge that happened with the collapse of dotcom. I had a front row seat through all of it. And lost my job as well. It sucked, but I did find another eventually through my network. Good people and good companies will survive this. Oh, and not a single company asked for a bailout, and over indulged billionaires did not go on TV and whine as proxies for VCs.
I was in tech in the SV during the dot com boom. There was a lot of churn back then and there were failures but people seemed to suck it up better than in the current environment. I haven’t been part of that world in a long time so I’m on the outside looking in when it comes to my impressions.
It’s very different now. That’s why I bailed. Too much entitlement and whining, and very little innovation.
FDIC has put SVB up for auction with results scheduled to be announced tonight (Sunday) night. Wells Fargo should tell the government "powers that be" that they will buy SVB in exchange for being removed from the "not allowed to grow bigger" penalty box. Best time to negotiate is when you have some leverage, as they say.
The kids crying for an ice cream this weekend are no different than the kids crying for ice cream during the GFC. George Carlin said it best, “iTs a big club and you aren’t in it.” The wealthy VCs will be made whole. Just like the fat cat bankers on Wall Street. The little guy/gal will be screwed.
For decades, it has been far easier than purchasing treasuries to lower risk to the FDIC insurance limits. Almost every bank of any size, and certainly SVB, has a treasury management service called an automated sweep. The CFO establishes a collected balance target for the operating account, and at the end-of-day, any balances in excess of the collected target is invested in various products the CFO may choose from. Yes, including US Treasuries. The automated sweep costs hundreds of dollars per month and can be paid for in offsetting account balances. This is basic short-term cash management. To be otherwise exposed is simply 'criminal' for a CFO.
These people like Bill Ackman, Gary Tan, Mark Cuban and many other just don't have a clue.
I think you are being too kind to those guys. They are almost certainly fully aware of this but choose to obfuscate the real issues for their own interests.
You are probably correct, but I did trade some comments with one of the three regarding their vision for an alternate PPP. I have to say I don't think they understand how banking works at a fundamental level.
Both of us could be right.
That seems like a "them" problem. If one doesn't understand something as basic as this, imo, they shouldn't be in charge of running capital. I know this and I'm just some stupid engineer that regularly exceeds the max short term capital losses. If I can figure that out, they have no excuses.
This was very educational. Thank you! Greatly appreciated.
Thank you for highlighting this issue.
I recommend Rudy Havenstein’s latest post on Ackman:
https://rudy.substack.com/p/bill-ackman-personifies-everything