I find your lack of empathy disturbing
Brief thoughts on SVB.
You all know what happened at SVB. But you might be wondering: “Whose fault is this?”
The answer, of course, is everyone. The bank for not managing risk appropriately. Depositors for not diversifying enough. VCs for precipitating a run. The Fed for hiking rates too quickly. The Federal government for not intervening soon enough. Or for intervening too quickly and thereby creating moral hazard.
But every one of these actions has a rationale that is reasonable. For instance:
Sure, SVB made a big mistake by investing in long duration debt securities that were highly susceptible to interest rate risk. But what else were they supposed to do when deposits tripled basically overnight & yield basically did not exist in a zero-interest rate world? Sure, they should have hedged — but it’s not like this decision was overly greedy or insane.
Yes, startup CFOs kept big uninsured balances at a financial institution that was uniquely exposed to depositor flight in the event of a run. But how much time is startup management supposed to spend contemplating the failure of a top 20 U.S. bank? Particularly when that bank is approximately 100x easier to work with than Wells Fargo, who is also about 100x more likely to decline to work with them?
Indeed, VC chirping on Twitter caused a panic that precipitated a run on the bank. But at what time of day last Thursday did encouraging portfolio companies to pull deposits flip from “irresponsible, the equivalent of yelling Fire in a movie theater” to “the only rational thing to do if bank failure looks imminent and payroll goes out on Tuesday”? Sure, the deposits were guaranteed on Sunday, but they certainly weren’t on Thursday afternoon.
This whole thing was indeed precipitated by rapid and unprecedented interest rate increases. But the point of those hikes is to protect the public from inflation / currency debasement, which disproportionately and adversely affects lower income people. Jerome Powell is not hiking because his hobby is blowing up crypto venture funds.
Regardless of what you think about the government’s decision on Sunday to guarantee all deposits (and what that means for future crises), please at least acknowledge that the whole point was to halt contagion and avoid a nationwide banking crisis that could permanently damage the general public. These are worthy goals!
Bank runs are a latent, tricky, nearly unresolvable problem that has existed since antiquity because they’re an unavoidable consequence of crowds and human nature. If the rational answer to deal with them were simply to “remain calm”, we wouldn’t need the FDIC. But we do.
Everyone involved could have done better, yes. And absolutely nobody is happy about the result. But the idea that anybody here was uniquely evil or entirely to blame, is an adolescent fantasy. If this is your reaction:
… then you are a child, and you need to either grow up or go back to reading Tolkien. I’m sorry that Twitter* has broken your brain to the point where you can only pay attention long enough to bucket people into either the “pure villain / must be euthanized” category or whatever you’d call the other one. But the failure of empathy here is profound, and sad to witness.
* (reminder to self: delete Twitter).
A terrible thing happened last week. Eight thousand people may lose their jobs. Many of those people have families and children. SVB originally became prominent because they did good things to enable job creation and prosperity.
Even though some startups seem frivolous and pointless, and even though Elizabeth Holmes is a thing that exists, on the whole if you banked with SVB you were probably doing something with your startup that is worth doing.
If your first reaction to a tragedy is to point a finger in glee, it’s time to take a hard look in the mirror.
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