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One of the casualties of Silicon Valley Bank’s demise is Etsy—which used SVB and is now warning its sellers that it will be unable to process the payments that have been made to them.
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SVB was also the bank of choice for California’s wine industry. About 5% of its $74 billion portfolio was tied up in loans to victims of the various Sonoma and Napa wildfires that decimated the vineyards back in 2020.
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The crazy thing is that SVB’s assets are still much greater than the sum of its debt. On paper, it’s still solvent. Didn’t have enough liquidity to meet a $40 billion run. Was forced to sell its Treasuries and bond portfolio at a huge loss to try and meet that $40 billion run.
But I mean—this is not necessarily mismanagement. At least in the classic sense.
Who does have enough liquidity to meet a $40 billion run?
This is what happens when you have 15 years of near-zero interest rates and then hike those interest rates by 1,700% in a single year!
SVB was flooded with investments when interest rates were low. And did the smart thing—invested them in long-term U.S. Treasury bonds and mortgage-backed securities. These investments yield relatively low interest rates of 1.6%, so when interest rates suddenly went up, investors wanted their money back to invest in short-term Treasuries that yield 4.5%.
Who do you blame?
I don’t know.
###
The more I mull on it, the more I come to understand that the tech sector—and all financial bubbles, really—can only thrive when inflation rates are low.
Because the whole tech sector is very much a Wimpy—Popeye character alert!—game: “I will gladly pay you for three hamburgers Tuesday if you will loan me the price of a hamburger today.”
The venture capital business in a nutshell!
###
Anyway, I’m not sure whether it was contemplating the ripple effects the collapse of SVB is bound to have—payrolls not met, lives upended and destroyed—or some more personal malaise that dumped me into such a depressed mood yesterday afternoon and evening.
My own life was upended and destroyed in the 2008 bank meltdown.
I managed to build a new life by dint of hard, hard, hard work—which entailed accepting the personal humiliation rather than railing against it.
But it was not a pleasant experience.
So reading the various gloats on FB—transported Twitter threads for the most part—filled me with a kind of despair.
Yes, yes, you were smart. Oh, the smartness of you! You were fortunate enough to cash in on the tech boom and get out before it (inevitably) imploded. Because these kinds of bubbles are cycles. Boom, crash, correct—boom again.
Yes, yes—you knew it all along and got your millions out before the next crash/correction/downturn.
But meanwhile, thousands of people are losing their jobs, their homes, their healthcare, their… everything.
But of course, I also know that in my experience—extensive, as long-time readers know! 😀 —very rich people are oddly superstitious in very strange ways. And that quite frequently, their disregard and even disdain for the misfortunes of those lower down on the food chain are a kind of attitudinal equivalent of sprinkling salt or burning sage to keep contagion at bay.
If you have compassion for one living being, you must have compassion for all living beings.
###
SVB was also the bank of choice for California’s wine industry. About 5% of its $74 billion portfolio was tied up in loans to victims of the various Sonoma and Napa wildfires that decimated the vineyards back in 2020.
###
The crazy thing is that SVB’s assets are still much greater than the sum of its debt. On paper, it’s still solvent. Didn’t have enough liquidity to meet a $40 billion run. Was forced to sell its Treasuries and bond portfolio at a huge loss to try and meet that $40 billion run.
But I mean—this is not necessarily mismanagement. At least in the classic sense.
Who does have enough liquidity to meet a $40 billion run?
This is what happens when you have 15 years of near-zero interest rates and then hike those interest rates by 1,700% in a single year!
SVB was flooded with investments when interest rates were low. And did the smart thing—invested them in long-term U.S. Treasury bonds and mortgage-backed securities. These investments yield relatively low interest rates of 1.6%, so when interest rates suddenly went up, investors wanted their money back to invest in short-term Treasuries that yield 4.5%.
Who do you blame?
I don’t know.
###
The more I mull on it, the more I come to understand that the tech sector—and all financial bubbles, really—can only thrive when inflation rates are low.
Because the whole tech sector is very much a Wimpy—Popeye character alert!—game: “I will gladly pay you for three hamburgers Tuesday if you will loan me the price of a hamburger today.”
The venture capital business in a nutshell!
###
Anyway, I’m not sure whether it was contemplating the ripple effects the collapse of SVB is bound to have—payrolls not met, lives upended and destroyed—or some more personal malaise that dumped me into such a depressed mood yesterday afternoon and evening.
My own life was upended and destroyed in the 2008 bank meltdown.
I managed to build a new life by dint of hard, hard, hard work—which entailed accepting the personal humiliation rather than railing against it.
But it was not a pleasant experience.
So reading the various gloats on FB—transported Twitter threads for the most part—filled me with a kind of despair.
Yes, yes, you were smart. Oh, the smartness of you! You were fortunate enough to cash in on the tech boom and get out before it (inevitably) imploded. Because these kinds of bubbles are cycles. Boom, crash, correct—boom again.
Yes, yes—you knew it all along and got your millions out before the next crash/correction/downturn.
But meanwhile, thousands of people are losing their jobs, their homes, their healthcare, their… everything.
But of course, I also know that in my experience—extensive, as long-time readers know! 😀 —very rich people are oddly superstitious in very strange ways. And that quite frequently, their disregard and even disdain for the misfortunes of those lower down on the food chain are a kind of attitudinal equivalent of sprinkling salt or burning sage to keep contagion at bay.
If you have compassion for one living being, you must have compassion for all living beings.
