bizjournals | UMB Financial Corp. CEO Mariner Kemper
said the reason the Mid-Size Bank Coalition of America asked the FDIC
to insure all bank deposits for the next two years was to immediately
restore confidence in the entire banking system, not just “too big to
fail” banks.
“That’s
the request from midsized banks, so that there is no reason for people
to see a perceived risk and move their money to somewhere where there is
less perceived risk right now,” he said. “I think that ultimately has
been the goal of the government, if you go back to the 2008 crisis, to
not have a too-big-to-fail outcome.”
Kemper
said a temporary unconditional guarantee from the FDIC would create
calm and buy time for everyone to talk about what longer-term changes
might be necessary.
“Facts
and cooler heads need to prevail here,” he said. “We don’t have a
fundamental crisis in the banking industry right now. There is no
monster under the bed. You can be afraid of your shadow, but it’s still a
shadow.”
UMB
has a 65% loan-to-deposit ratio, which means the bank has plenty of
money for customers if a crisis emerges, Kemper said. UMB knows its
clients, and those clients know the bank. Kemper said he has made
innumerable calls to clients to answer any questions they may have.
“Half
of them are saying thanks for calling, but you didn’t need to,” Kemper
said. “The other half are saying thanks for calling, I feel better. Some
are telling me they bought stock or put more money into the bank as a
show of support. That’s what our community is doing. So I guess what I’d
say is it’s not a crisis, so don’t make it one. As the British say,
stay calm, and carry on. If everyone just takes a beat and focuses on
running their business and paying their bills, getting in their car and
going where they need to go just for a few days and takes a deep breath,
this thing will all be in the rearview mirror.”
realclearwire | One thing is clear. At $319 billion and counting, the failures of
Silicon Valley Bank and Signature Bank alone in the last two weeks are
already on par
with the entire 2008 financial crisis, which saw 25 banks failing, with
$373 billion in combined assets. And with $620 billion of unrealized losses that triggered this crisis still pending, we may be just getting started.
What path policymakers will choose this time around is unclear. The
country has never been more evenly split politically. Meanwhile, the
regulatory system has attempted to stem the tide without the involvement
of Congress or the White House. A political reconciliation, in other
words, has been deferred.
Political issues come and go, but financial panics create political
movements because they hit Americans directly, in their bank accounts.
Voters pay attention.
The movement that results from this panic will depend ultimately on
whom voters blame for it. That scapegoat, whether real or imagined, will
determine where on the political spectrum the movement leans.
Many Americans continue to identify government itself
as the top non-economic issue they face. Inflation, a problem created
by government, is their top economic problem. Most Americans believe the
federal government
is too big and doing too much. In places like real-life Indiana,
Pennsylvania or fictional Beaver Falls, it is abundantly clear that
Americans have lost faith in their leading institutions.
“You sit around here and you spin your little webs and you think the
whole world revolves around you and your money,” George Bailey tells his
antagonist in “It’s a Wonderful Life.”
Bailey was referring to the machinations of a powerful banker, but
his words are fitting in an unintended sense, too: in American politics,
realignments begin because the world revolves around voters and their
money.
dailyreckoning | The trouble, of course, is that the government doesn’t have the means
to bail out every bank. Its only resort is to ask the Federal Reserve
to summon new money from a magic ether where the illusion of wealth is
conjured to paper over ever greater fissures in the splintering matrix
of racketeering that America has become.
That will quickly
translate into U.S. dollars losing value, that is, accelerating
inflation, which is how nature punishes you when your government lies
and pretends that it has a bad situation well in hand.
The
practice in situations such as this (say, as in 2008-09) is for the
governing authorities — who supposedly rule over the banking world like
gods — to rush to rescue these outfits with “liquidity,” money (or
representations of it) as required to re-balance things or maybe provide
the impression of re-balancing until something else can be figured out.
The
Jupiter and Minerva of American banking, Jay Powell and Janet Yellen,
were faced with just that sort of call for divine intervention over the
weekend as fear seeped into every nook and crevice of the money world
that wealth was flaring away in the long-feared-of conflagration out of
the dumpster banking had become.
Sunday morning, Ms. Yellen told
CBS News “bailouts, no way” but by the afternoon Mr. Powell cried
“bailouts, way,” and they had to get their story straight. They offered
up $25 billion to bail out depositors for a smoldering system that will
arguably require a trillion dollars or more of liquidity to quench the
spreading fires.
One thing looks for sure: The interest rate hikes
that Mr. Powell spoke of so confidently only days ago just got stashed
into his folder labeled “Fuggeddabowdit.” So the campaign to control
inflation must now yield to the urgent need to create a whole lot of
money to spray over those fires.
You
may have noticed that the value of your money has been slip-sliding
away the past year or so. Peanut butter at five bucks a jar, and all.
The situation at hand kind of guarantees that we’ll be seeing a whole
lot more of that.
And then the gods of money will have lost control of the interest rate console altogether.
No
more tweaking the broken knobs. More inflation will prompt U.S.
Treasury paper holders to dump what they can while there’s still some
value to retrieve. But the U.S. has to issue more debt for all the
bailouts and theoretical buyers of new debt will perforce bid up the
rates to keep up with inflation… and yet the U.S. can’t possibly bear
the burden of paying higher interest on its debt.
Looks like the business model for running the USA is breaking down before our eyes.
Luckily,
Cap’n “Joe Biden” is at the helm of this steaming garbage barge. His
conference room full of geniuses is ready with the solution to our
predicament: the long-mythologized central bank digital currency — a
dream-come-true for would be tyrants… the Godzilla of unicorns whinnying
atop the biggest rainbow of all: the promise of endless magic money for
everybody, forever.
All you have to do to get it is: Surrender
your decision-making power over your own life. The government will
amalgamate your few remaining assets in a CBDC account, tell you exactly
what to spend it on and shut off your little card if you show any
contrary impulses.
Well, they can try it. I doubt it will work.
Instead, the government will melt down in its own rancid puddle of
insolvency, the meta-grift will grind to an end and it will be everyone
for his/her/they self in the broke-down Palace of Chaos for a while…
until things emergently reconstruct.
But I get a little ahead of myself. It’s not even ten o’clock on Monday morning. Oh, and then there’s Ukraine…
freddiedeboer |“Woke” or “wokeness” refers to a school of social and cultural
liberalism that has become the dominant discourse in left-of-center
spaces in American intellectual life. It reflects trends and fashions
that emerged over time from left activist and academic spaces and became
mainstream, indeed hegemonic, among American progressives in the 2010s.
“Wokeness” centers “the personal is political” at the heart of all
politics and treats political action as inherently a matter of personal
moral hygiene - woke isn’t something you do, it’s something you are.
Correspondingly all of politics can be decomposed down to the right
thoughts and right utterances of enlightened people. Persuasion and
compromise are contrary to this vision of moral hygiene and thus are
deprecated. Correct thoughts are enforced through a system of mutual
surveillance, one which takes advantage of the affordances of internet
technology to surveil and then punish. Since politics is not a matter of
arriving at the least-bad alternative through an adversarial process
but rather a matter of understanding and inhabiting an elevated moral
station, there are no crises of conscience or necessary evils.
Woke is defined by several consistent attributes. Woke is
Academic
- the terminology of woke politics is an academic terminology, which is
unsurprising given its origins in humanities departments of elite
universities. Central to woke discourse is the substitution of older and
less complicated versions of socially liberal perspectives with more
willfully complex academic versions. So civil rights are out,
“anti-racism” is in. Community is out, intersectionality is in. Equality
is out, equity is in. Homelessness is out, unhousedness is in. Sexism
is out, misogyny is in. Advantage is out, privilege is in. Whenever
there’s an opportunity to introduce an alternative concept that’s been
wrung through academia’s weird machinery, that opportunity is taken.
This has the advantage of making political engagement available only to a
priestly caste that has enjoyed the benefits of elite university
education; like all political movements, the woke political movement is
captured by the urge to occupy elevated status within it.
Immaterial
- woke politics are overwhelmingly concerned with the linguistic, the
symbolic, and the emotional to the detriment of the material, the
economic, and the real. Woke politics are famously obsessive about
language, developing literal language policies that are endlessly long
and exacting. Utterances are mined for potential offense with pitiless
focus, such that statements that were entirely anodyne a few years ago
become unspeakable today. Being politically pure is seen as a matter of
speaking correctly rather than of acting morally. The woke fixation on
language and symbol makes sense when you realize that the developers of
the ideology are almost entirely people whose profession involves the
immaterial and the symbolic - professors, writers, reporters, artists,
pundits. They retreat to the linguistic because they feel that words are
their only source of power. Consider two recent events: the Academy
Awards giving Oscars to many people of color and Michigan repealing its
right-to-work law. The latter will have vastly greater positive
consequences for actually-existing American people of color than the
former, and yet the former has been vastly better publicized. This is a
direct consequence of the incentive structure of woke politics.
Structural
in analysis, individual in action - the woke perspective is one that
tends to see the world’s problems as structural in nature rather than
the product of individual actors or actions. Sometimes the problems are
misdiagnosed or exaggerated, but the structural focus is beneficial.
Curiously, though, the woke approach to solutions to politics is
relentlessly individualistic. Rather than calling for true mass
movements (which you cannot create without the moderation and compromise
the social justice set tends to abhor), woke politics typically treats
all political struggle as a matter of the individual mastering
themselves and behaving correctly. The fundamental unit of politics is
not the masses but the enlightened person, in the social justice
mindset, and the enlightened person is one who has attained a state of
moral cleanliness, particularly as expressed in language. The structural
problems (such as racism) are represented as fundamentally combated
with individual moral correctness (such as articulated in White Fragility by
Robin DiAngelo, which argues that racism is combated by white people
interrogating their souls rather than with policy). The only real
political project is the struggle against the self; the only real
political victory is the mastery of one’s thoughts. The distinction
between the effective political actor and the morally hygienic thinker
is collapsed. You combat homophobia by being gay-affirming. You combat
misogyny by respecting women. You combat all social ills by relentlessly
fixating on your own position in society and feeling bad about it.
Nothing political can escape the gravity of personal psychodrama and no
solutions exist but cleansing the self.
Emotionalist
- “emotionalist” rather than emotional, meaning not necessarily
inappropriately emotional but concerned fundamentally with emotions as
the currency of politics. In woke circles, political problems are
regularly diagnosed as a matter of the wrong emotions being inspired in
someone. Someone feeling “invalid” is no longer an irrelevant matter of
personal psychology best left to a therapist but instead a political
problem to be solved, and anyone who provoked that feeling is someone
who has committed a political crime no matter what the context or
pretext.
theconversation | Rep. Marjorie Taylor Greene, a Republican from Georgia, wants a “national divorce.” In her view, another Civil War is inevitable unless red and blue states form separate countries.
But all this secession talk misses a key point that every troubled
couple knows. Just as there are ways to withdraw from a marriage before
any formal divorce, there are also ways to exit a nation before
officially seceding.
“Cal-exit,” a plan for California to leave the union after 2016, was the most acute recent attempt at secession.
And separatist acts have reshaped life and law in many states. Since 2012, 21 states have legalized marijuana, which is federally illegal. Sanctuary cities and states have emerged since 2016 to combat aggressive federal immigration laws and policies. Some prosecutors and judges refuse to prosecute women and medical providers for newly illegal abortions in some states.
Estimates vary, but some Americans are increasingly opting out of
hypermodern, hyperpolarized life entirely. “Intentional communities,”
rural, sustainable, cooperative communes like East Wind in the Ozarks, are, as The New York Times reported in 2020, proliferating “across the country.”
In many ways, America is already broken apart. When secession is
portrayed in its strictest sense, as a group of people declaring
independence and taking a portion of a nation as they depart, the
discussion is myopic, and current acts of exit hide in plain sight. When
it comes to secession, the question is not just “What if?” but “What
now?”
geopoliticaleconomy | Many media reports have presented Silicon Valley Bank as a financial
lifeline for start-up companies, but this portrayal is misleading.
Venture capitalist and private equity firms were SVB’s main
customers, making up 56% of its loan portfolio at the end of 2022. Only
around 20% of the bank’s loans went directly to start-ups and tech
companies.
Like SVB, Signature Bank worked closely with venture capital and
private equity firms. Another important customer base consisted of cryptocurrency companies, which made up around 20% of total deposits.
The financial website Wall Street on Parade
explained that Silicon Valley bank “was a financial institution
deployed to facilitate the goals of powerful venture capital and private
equity operators, by financing tech and pharmaceutical startups until
they could raise millions or billions of dollars in a Wall Street
Initial Public Offering (IPO)”.
Wall Street on Parade analysts Pam Martens and Russ Martens went even
further, documenting how SVB was in essence bailed out by the US
government throughout 2022, before it crashed.
They wrote (emphasis added):
To put it bluntly, this
was a Wall Street IPO machine that enriched the investment banks on
Wall Street by keeping the IPO pipeline moving; padded the bank accounts
of the venture capital and private equity middlemen; and minted startup
millionaires for ideas that often flamed out after the companies went
public. These are the functions and risks taken by investment banks. Silicon Valley Bank – with this business model — should never have been allowed to hold a federally-insured banking charter and be backstopped by the U.S. taxpayer, who was on the hook for its incompetent bank management.
We say incompetent based on this fact alone (although there were clearly lots of other problem areas): $150 billion of its $175 billion in deposits were uninsured. The bank was clearly playing a dangerous gambit with its depositors’ money.
Adding further insult to U.S. taxpayers,the Federal Home Loan Bank of San Francisco was quietly bailing out SVB throughout much of last year [2022].
Federal Home Loan Banks are also not supposed to be in the business of
bailing out venture capitalists or private equity titans. Their job is
to provide loans to banks to promote mortgages to individuals and loans
to promote affordable housing and community development.
According to SEC filings by the Federal Home Loan Bank of San Francisco, its loan advances to SVB went from zero at the end of 2021 to a whopping $15 billion on December 31, 2022. The SEC filing provides a graph showing that SVB was its largest borrower at year end, with outstanding advances representing 17 percent of all loans made by the FHLB of San Francisco.
Silicon Valley oligarchs use cynical populist rhetoric to defend the Fed bailout
Despite the fact that SVB was linked with a virtual economic
umbilical cord to Wall Street, some Silicon Valley oligarchs like David
O. Sacks have cynically tried to portray the US government bailout as a
blow to the big banks.
Sacks is a member of the infamous PayPal Mafia, which The Telegraph newspaper described as “the richest group of men in Silicon Valley“.
In a soft-ball interview on the Jimmy Dore Show, Sacks claimed the
Fed bailout was needed to save a “vibrant regional banking system” from
the big four banks that the government has deemed “systemically
important” (JPMorgan Chase, Bank of America, Citigroup, and Wells
Fargo).
Sacks did not mention that he has made many investments in Silicon Valley companies that stand to benefit from the Fed bailout.
NYTimes | A
fair amount of government aid earmarked for the poor never reaches
them. But this does not fully solve the puzzle of why poverty has been
so stubbornly persistent, because many of the country’s largest
social-welfare programs distribute funds directly to people. Roughly 85
percent of the Supplemental Nutrition Assistance Program budget is
dedicated to funding food stamps themselves, and almost 93 percent of
Medicaid dollars flow directly to beneficiaries.
There
are, it would seem, deeper structural forces at play, ones that have to
do with the way the American poor are routinely taken advantage of. The
primary reason for our stalled progress on poverty reduction has to do
with the fact that we have not confronted the unrelenting exploitation
of the poor in the labor, housing and financial markets.
As a theory of poverty, “exploitation” elicits a muddled response, causing us to think of course and but, no
in the same instant. The word carries a moral charge, but social
scientists have a fairly coolheaded way to measure exploitation: When we
are underpaid relative to the value of what we produce, we experience
labor exploitation; when we are overcharged relative to the value of
something we purchase, we experience consumer exploitation. For example,
if a family paid $1,000 a month to rent an apartment with a market
value of $20,000, that family would experience a higher level of renter
exploitation than a family who paid the same amount for an apartment
with a market valuation of $100,000. When we don’t own property or can’t
access credit, we become dependent on people who do and can, which in
turn invites exploitation, because a bad deal for you is a good deal for
me.
Our vulnerability to exploitation
grows as our liberty shrinks. Because undocumented workers are not
protected by labor laws, more than a third are paid below minimum wage,
and nearly 85 percent are not paid overtime. Many of us who are U.S.
citizens, or who crossed borders through official checkpoints, would not
work for these wages. We don’t have to. If they migrate here as adults,
those undocumented workers choose the terms of their arrangement. But
just because desperate people accept and even seek out exploitative
conditions doesn’t make those conditions any less exploitative.
Sometimes exploitation is simply the best bad option.
Consider
how many employers now get one over on American workers. The United
States offers some of the lowest wages in the industrialized world. A
larger share of workers in the United States make “low pay” — earning
less than two-thirds of median wages — than in any other country
belonging to the Organization for Economic Cooperation and Development.
According to the group, nearly 23 percent of American workers labor in low-paying jobs,
compared with roughly 17 percent in Britain, 11 percent in Japan and 5
percent in Italy. Poverty wages have swollen the ranks of the American
working poor, most of whom are 35 or older.
One
popular theory for the loss of good jobs is deindustrialization, which
caused the shuttering of factories and the hollowing out of communities
that had sprung up around them. Such a passive word,
“deindustrialization” — leaving the impression that it just happened
somehow, as if the country got deindustrialization the way a forest gets
infested by bark beetles. But economic forces framed as inexorable,
like deindustrialization and the acceleration of global trade, are often
helped along by policy decisions like the 1994 North American Free
Trade Agreement, which made it easier for companies to move their
factories to Mexico and contributed to the loss of hundreds of thousands
of American jobs. The world has changed, but it has changed for other
economies as well. Yet Belgium and Canada and many other countries
haven’t experienced the kind of wage stagnation and surge in income
inequality that the United States has.
Those
countries managed to keep their unions. We didn’t. Throughout the 1950s
and 1960s, nearly a third of all U.S. workers carried union cards.
These were the days of the United Automobile Workers, led by Walter
Reuther, once savagely beaten by Ford’s brass-knuckle boys, and of the
mighty American Federation of Labor and Congress of Industrial
Organizations that together represented around 15 million workers, more
than the population of California at the time.
In
their heyday, unions put up a fight. In 1970 alone, 2.4 million union
members participated in work stoppages, wildcat strikes and tense
standoffs with company heads. The labor movement fought for better pay
and safer working conditions and supported antipoverty policies. Their
efforts paid off for both unionized and nonunionized workers, as
companies like Eastman Kodak were compelled to provide generous
compensation and benefits to their workers to prevent them from
organizing. By one estimate, the wages of nonunionized men without a
college degree would be 8 percent higher today if union strength remained what it was in the late 1970s, a time when worker pay climbed, chief-executive compensation was reined in and the country experienced the most economically equitable period in modern history.
It
is important to note that Old Labor was often a white man’s refuge. In
the 1930s, many unions outwardly discriminated against Black workers or
segregated them into Jim Crow local chapters. In the 1960s, unions like
the Brotherhood of Railway and Steamship Clerks and the United
Brotherhood of Carpenters and Joiners of America enforced segregation
within their ranks. Unions harmed themselves through their
self-defeating racism and were further weakened by a changing economy.
But organized labor was also attacked by political adversaries. As
unions flagged, business interests sensed an opportunity. Corporate
lobbyists made deep inroads in both political parties, beginning a
public-relations campaign that pressured policymakers to roll back
worker protections.
A
national litmus test arrived in 1981, when 13,000 unionized air traffic
controllers left their posts after contract negotiations with the
Federal Aviation Administration broke down. When the workers refused to
return, Reagan fired all of them. The public’s response was muted, and
corporate America learned that it could crush unions with minimal
blowback. And so it went, in one industry after another.
Today
almost all private-sector employees (94 percent) are without a union,
though roughly half of nonunion workers say they would organize if given
the chance. They rarely are. Employers have at their disposal an
arsenal of tactics designed to prevent collective bargaining, from
hiring union-busting firms to telling employees that they could lose
their jobs if they vote yes. Those strategies are legal, but companies also make illegal moves to block unions,
like disciplining workers for trying to organize or threatening to
close facilities. In 2016 and 2017, the National Labor Relations Board
charged 42 percent of employers with violating federal law during union
campaigns. In nearly a third of cases, this involved illegally firing
workers for organizing.
zerohedge | With rising inflation putting pressure on household finances, some low-income Americans have turned to "Dollar Tree Dinners" as their meal of choice.
Rebecca
Chobat's TikTok videos have garnered the interest of budget-conscious
shoppers, particularly as food inflation continues to persist at its
highest level in four decades. Through her videos, which reach an
audience of 742.5k followers, she explains how to make meals using
products from the discount retailer with a weekly budget of $35.
Chobat has published numerous videos showcasing "unique recipes and
cooking ideas from the Dollar Tree." Some of her video titles include
"Dollar Tree Gumbo" and "Dollar Tree Beef Pot Pie."
Although consumers can save money by consuming Dollar Store meals, there are some negative aspects to consider:
The
Institute for Local Self-Reliance recently published a report
expressing worry about the absence of fresh produce in discount stores.
Most food sold at Dollar Tree contains highly-caloric and
heavily-processed items, which are not considered nutritious options.
However,
due to negative real wage growth taking a toll on household finances,
some individuals have no alternative but to turn to Dollar Stores for
food. For some, even Walmart has become too expensive.
Since the 2008 financial crisis, there's been an explosion of Dollar General,
Dollar Tree, and Family Dollar stores nationwide as the vast majority
of folks are getting poorer. All three discount retailers operate 34,000
stores nationwide and are set to open thousands more in the coming
years.
Chobat told Bussiness Insider these videos are having a real impact on people saving money in these challenging times.
"I get those messages fairly frequently but that one really struck home for me," she said.
Regularly
consuming food from discount stores could lead to health issues in the
future. Therefore, it is imperative to revitalize local economies and
supermarkets to promote the availability of fresh food products.
hotair | This story is duplicated countless times and in countless ways and
tells you everything you need to know about how corrupt our welfare
state actually is. We often focus on the occasional incidences of
welfare fraud committed by recipients, but those incidents pale in
comparison to the amount of money that is simply skimmed off the top by
the people who run the programs.
It’s not the poor people who are benefiting, but the people who are
claiming to help them. Those people are getting rich, cushy government
jobs with great pay and benefits, and in many cases kickbacks.
Here in Minnesota, we have an enormous scandal centered on an Ilhan Omar-associated group
that stole hundreds of millions of pandemic relief money that was
supposed to be spent on providing a substitute for the school lunch
program during the school closures. A nonprofit that was essentially a
Somali gang set up fake feeding centers that served almost nobody but
collected hundreds of millions from the Minnesota government.
The government officials did almost nothing. It took the FBI to shut
the scam down. Our Department of Education knew of the graft but was
concerned with appearing racist and ticking off our Congresswoman.
This is how the government-to-nonprofit complex works. Politically
connected people conspire to use the suffering of others as an excuse to
fleece the taxpayers of what is collectively billions of dollars. It is
estimated that total fraud from pandemic relief funds alone amounts to
hundreds of billions to over a trillion dollars in just 3 years.
And that doesn’t include the billions in yearly payments to nonprofits that accomplish little to nothing.
I call this process “farming the poor,” where poor people are the
soil used to grow the billions of dollars that pop out of the ground
every time you appeal to people’s compassion or desire for a better
quality of life.
Poverty is an industry, not run by or for the poor people themselves,
but for the benefit of those whose job it is to solve the problems.
businessinsider | Discount chains like Dollar General and Big Lots are warning that
cuts to food stamps and lower-than-usual tax refunds this year could
start hurting sales.
Both
changes are the result of a wind-down of pandemic-era policies, and
it's the combination of factors that has retailers worried — they're
coming at a time when inflation has kept prices for everyday goods unusually high, straining the budgets of lower-income consumers in particular.
Now, the retailers that serve those consumers are preparing for a possible slowdown in spending.
"In particular, we remain concerned about the lower-income customer,
our core customer," Michael O'Sullivan, CEO of off-price department
store Burlington, said during a call with investors this month. "In
2022, this customer group bore the brunt of the impact of inflation on
real household incomes. We think the impact of inflation will moderate
this year, but there are other factors that could hurt this customer,
such as a rise in unemployment and the ending of expanded SNAP
benefits."
At value chain Big Lots, where nearly 80% of shoppers
have a household income under $100,000, "customers are pinched," CEO
Bruce Thorn said during a recent investor call.
"At this point,
30% of that lower household income customer, their expenses today are
greater than their income coming in. And 70% of them have curbed
spending as a result of that," he said.
Thorn estimated that the
tax refunds, though arriving earlier this year, are about 10% to 15%
lower than last year, and when combined with the reduced SNAP benefits,
it "further deteriorates lower household income spend." Those shoppers,
he said, are "going through a tough time right now."
Counterpunch | facilitating the purchase of critical infrastructure— and housing is
critical infrastructure, by Wall Street is predatory, short-sighted, and
systemically de-stabilizing. Permitting unlicensed hotels (AIRBNB),
unlicensed taxis (Uber), and the systematic refusal to collect state and
local taxes for online purchases (Amazon), reflects a contrived and
wholly nonsensical ‘individualist’ ethos of capitalism where individuals
born into the bailed-out class effectively govern the US. This is the
political context in which Joe Biden bailed out corrupt and / or
incompetent bank managers and corporate depositors at SVB.
Political architecture where a small group of politicians, oligarchs,
and corporate executives erase the lines between corporate and state
interests to use state resources for their own benefit while treating
the populace as rubes and marks deserving of being preyed upon 1)
reasonably well describes the US at present and 2) fits the definition
of Italian fascism as state corporatism. Add in unhinged militarism
motivated by imperialist objectives and ‘liberal democracy’ looks and
feels like fascism to those on its receiving end.
It is clear that this view of the architecture isn’t widely shared,
with most Americans relying on the imagined choice that voting for
duopoly party candidates provides. Missing from that view is the
proletarianization of the US that has taken place over the last five
decades, with the exception being the PMC (Professional-Managerial
Class), which manages state and corporate affairs for the rich. The
genesis of the PMC in service to power has it parroting the logic of the
rich in exchange for privileges that the remaining 85% of the
population doesn’t receive.
SVB, like SBF (Sam Bankman Fried) of crypto infamy before it, is a
weathervane helpful for reading the direction of the prevailing winds,
but not a whole lot more. The system that produced it is coming unglued,
with mass Covid deaths far out of proportion to the size of the
population, failing healthcare and banking systems, a proxy war underway
that risks nuclear annihilation, and a government that sees its role as
working with corporations to loot the world. Underestimate the risk of
truly horrific outcomes at your own peril.
Last, on a personal note, I, and most of the people I know, are so
angry about this state of affairs that I don’t see how existing
political unions hold. The people running the country never cared much
about us, but unity in ‘nation’ led to a sense of shared interests that
disappeared with the neoliberal turn. As I’ve written before,
revolutionaries don’t make revolutions, existing power does. While I’m
not holding my breath, if the current political leadership doesn’t lead
to a revolution, revolution isn’t possible.
Lowering of boundaries between markets ranging from the large number
of global macro hedge funds to the large number of retail currency
speculators is destabilizing. I’ve found occasional
supporting bits of empirical evidence on financial crises, which found that
greater financial integration was correlated with crises - however - there is currently no mainstream theory which articulates this hypothesis. Conventional economic wisdom would tell you arbitrage is
always and ever good (it supposedly improves price formation which leads
to better allocation of capital), and inefficiencies are bad.
However,
complex systems theory provides a very different perspective:
Perhaps a lesson to be learned here is that liquidity acts as an
efficient conductor of risk. It doesn’t make risk go away, but moves it
more quickly from one investment sector to another.
From a complex systems theory standpoint, this is exactly what you
would do if you wanted to take a stable system and destabilize it.
One of the things that helps to enable non-linear behavior in a
complex system is promiscuity of information (i.e., feedback loops but
in a more generalized sense) across a wide scope of the system.
One way you can attempt to stabilize a complex system through
suppressing its non-linear behavior is to divide it up into little boxes
and use them to compartmentalize information so signals cannot easily
propagate quickly across the entire system.
This principle has been recognized in the design of software systems
for several decades now, and is also a design principle recognizable in
many other systems both natural and artificial (e.g., biology,
architecture) which are very robust with regard to exogenous shocks.
Stable systems tend to be built from structural heirarchies which do not
share much information across structural boundaries, either laterally
or vertically. That is why you don’t die from a heart attack when you
stub your toe, your house doesn’t collapse when you break a window, and
if your computer crashes it doesn’t take down the entire Internet with
it.
Glass-Steagall is a good example of this idea put into practice. If
you use regulatory firewalls to define distinct investment sectors and
impose significant transaction costs at their boundary that will help to
reduce the speed and amplitude of signals which will propagate from one
sector to another, so a collapse in one of them will be less likely
to cause severe problems in the others.
THEY have torn down most of these barriers in the last
few decades in the name of arbitrage, forgetting that the price we
paid for them in inefficiency was a form of insurance against the risk
of systemic collapse. This is exactly what I would do if I wanted to
take a more or less stable, semi-complex system and drive it in the
direction of greater non-linearity.
Is it a symptom of the
decay and loss of trans-generational memories from our last great
systemic shock in the 1930s? Or is it the result of something more structured and intentional? I suspect that something like this is bound
to happen every 3-4 generations as we unlearn the lessons our
grandparents and great-grandparents learned to their cost.
NC | Three different banks with
very different business strategies and asset mixes got in trouble at the
same time.1 Some like Barney Frank, on the board of Signature Bank,
argue that the common element was a regulatory crackdown on banks too
cozy with the crypto industry. But that’s not really the case with
Silicon Valley Bank, which has been suffering for a while from declines
in its deposits due to a falloff in new funding all across tech land, as
well as more difficult business conditions leading to not much in the
way of new customers and falling deposit balances at most existing
customers.
What the three banks did have in common was a very high level of
uninsured deposits which made them particularly vulnerable to runs and
therefore should have led the banks’ managements to be very mindful of
asset-liability mismatches and liquidity. And they should have focused
on fees rather than the balance sheet to achieve better than ho-hum
profits.
Silicon Valley Bank has attempted to wrap itself in the mantle of being a stalwart of those rent-extracting
innovative tech companies. But Silicon Valley Bank is hiding behind the
skirts of venture capital firms. They are the ones who provided and
then kept organizing the influx of capital to these companies. The story
of the life of a venture capital backed business is multiple rounds of
equity funding. Borrowing is very rarely a significant source of
capital. So the idea that Silicon Valley Bank was a lender to portfolio
companies is greatly exaggerated.2
Both the press and several readers have confirmed that the reason for
Silicon Valley Bank’s lock on the banking business of
venture-capital-funded companies was that the VCs required that the
companies keep their deposits there. And that’s because the VCs could
keep much tighter tabs on their investee companies by having the bank
monitor fund in and outflows on a more active basis than the VCs could
via periodic management and financial reports.
Now what flows from that? One of the basic rules of business is that
it is vastly cheaper to keep customers than find them. Silicon Valley
Bank would be highly motivated to attract and retain both the fund and
the personal business of its venture capital kingpins. Accordingly, the
press has pointed out that loans to vineyards and venture capital
honchos’ mortgages were important businesses. It’s not hard to think
that these were done on preferential terms to members of a big VC firm’s
“family” as a loyalty bonus of sorts.
On top of that, recall that Silicon Valley Bank bought Boston Private
with over $10 billion in assets, in July 2021. The wealth management
firm also had a very strong registered investment adviser platform and
additional assets under management. That suggests Silicon Valley
recognized increasingly that the care and feeding of its rich individual
clients was core to its strategy.
It’s impossible to prove at this juncture, but I strongly suspect
that the individual account withdrawals were at least as important to
Silicon Valley Bank’s demise as any corporate pullouts. One tell was the
demand for a backstop of all unsecured deposits, and not accounts that
held payrolls. A search engine gander quickly shows that it’s
recommended practice for companies to keep their payroll funds in a bank
account separate from that of operating funds. One has to assume that
the venture capital overlords would have their portfolio companies
adhere to these practices.
The press also had anedcata about wealthy customers in Boston getting
so rowdy when trying to get their money out that the bank called the
police, as well as Peter Thiel (to the tune of $50 million), Oprah, and
Harry & Meghan as serious depositors.
Similarly, there is evidence that the run at Signature Bank was that of rich people. Lambert presented this tidbit from the Wall Street Journal yesterday in Water Cooler:
A rush by New York City real-estate investors to yank
money out of Signature Bank last week played a significant role in the
bank’s collapse, according to building owners and state regulators. The
withdrawals gained momentum as talk circulated about the exposure
Signature had to cryptocurrency firms and that its fate might follow the
same path as Silicon Valley Bank, which suffered a run on the bank last
week before collapsing and forcing the government to step in. Word that
landlords were withdrawing cash spread rapidly in the close-knit
community of New York’s real-estate families, prompting others to follow
suit. Regulators closed Signature Bank on Sunday in one of the biggest
bank failures in U.S. history. Real-estate investor Marx Realty was
among the many New York firms to cash out, withdrawing several million
dollars early last week from Signature accounts tied to an office
building, said chief executive Craig Deitelzweig.
This selection also illustrates a point that makes it hard to analyze
these bank crashes well. The very wealthy regularly use corporate
entities for personal investments, so looking at corporate versus purely
individual account holdings is often misleading in terms of who is
holding the strings. A business owned by a billionaire does not operate
like a similar-sized company with a typical corporate governance
structure.3
Ironically, First Republic Bank, which holds itself out as primarily a
private bank, had the lowest level of uninsured deposits, 67% versus
86% at Silicon Valley Bank and 89% at Signature. But its balance sheet
was heavy on long-term municipal bonds, which are not eligible
collateral at the discount window or the Fed’s new Bank Term Funding
Program facility. Hence the need for a private bailout.
I still want to know who started the run? Not the Peter Thiel run on March 8-9 brought on by SVB’s liquidation of long-maturity Treasuries and MBS and failed equity offering. Why was SVB already having to raise so much cash before March 8-9?
SVB’s 12/31/22 SEC Form 10K (now locked from public view) disclosed a huge run-up in time deposits during 2022. Page 81 of SVB’s 10K showed a nearly 5-to-1 imbalance in “non-U.S. time deposits” exceeding the FDIC limit, most having a maturity of 3 months or less.
Who were these “non-U.S.” depositors? Were they responsible for SVB’s sudden 2023 need for liquidity?
Why was SVB’s management team unable to understand the risk profile of this sudden influx of foreign time deposits — rather than local “parked” VC investment — and match their own investments to them (simple incompetence and the absence of a risk officer likely explains this part of the puzzle)?
Were the “non-U.S.” depositors state actors aware of SVB’s reckless and corrupt exemption from the Basel rules?
Was the pre-March 8-9 an asymmetrical introduction of financial contagion and crisis into the U.S. banking system by outside state actors aware of the hubristic lack of regulation and oversight in the U.S. financial system?
Portfolio companies were forced to keep their
deposits at SVB by their VC investors (which is… unusual) or by the
terms of any SVB lending that they drew (which would be perfectly
reasonable). In either case, it makes the depositor more
of a victim since, once they took the VC investment of SVB loan, they
didn’t have any banking risk options other than SVB. We just don’t know
what percentage of depositors were compelled either way but it doesn’t matter because the more important players
in the failure are the funds themselves.
This is the real scandal at SVB: how its managers’
and fund clients’ greed drove it into the ground in the last eight years
of the ZIRP and pandemic boom, having spent the first thirty years
building a solid business lending primarily to
real businesses (albeit VC-backed). It is the shift from industrial to
financial capitalism personified and on fast forward.
In 2015 50% of its
loans were to portfolio companies and 33% to funds and 66% of its high
quality liquid assets were available-for-sale securities, i.e. marked to
market. SVB doesn’t publish a breakdown of depositors,
but it would be reasonable to assume the split broadly follows the loan
book, given the relationship banking approach and the fact that a the
bank only takes deposits to cultivate a borrower.
By 2022, only 23% of loans were to companies and
56% were to funds. This is the killer change, if the deposit base mix
followed suit. Deposits from companies are comparatively sticky, given
lending relationship and other services like card
merchant services etc. Deposits from funds are not sticky: the general
partner is borrowing cash today (to accelerate investment pace) against
an agreed schedule of future capital injections by the fund’s limited
partners and, given these relationships are
contractual, the only practical security for the loan is that the
capital calls are paid into a nominated SVB account from which the loan
is satisfied (1).
Worse, by 2022, the high quality liquid assets were
only 22% available-for-sale (I.e. marked to market), down from 66%. The
rest were held at book value.
So the stage is set. The overall asset base has
increased by 400% but high quality liquid assets available for sale have
lagged and only increased by 50%. The majority of the loan book is now
lent to funds as hot money advances on capital
calls and these funds (or the funds plus their puppet portfolio
companies) are the likely majority of the deposit base. Cue a rumor
among the herd mentality funds and that deposit base flees overnight, as
the general partners pull their money and order the
portfolio companies to do likewise.
If SVB had kept to its 2015 ratios, this would not
have happened. The AFS losses would have forced an earlier capital
increase and the deposit base would have been stickier because the
portfolio companies would have been taking their banking
decisions. Similarly, by chasing the funds as the source of loan growth
and relying on the fund relationship to drag portfolio companies in for
deposit base growth, SVB put its deposit base in the hands of a tiny
coterie of people who promptly
crashed their own bank….
I still think we should not approach SVB with
Schadenfreude just because VC in the last decade has been
unsympathetically triumphalist and Hobbesian (Uber, Wework, Palantir
etc). But, having reviewed the numbers, I have revised my impression
of SVB “doing God’s work” as a banker to startups. It has instead been a
greedy enabler of a clique of general partner assholes.
Unfortunately, the portfolio companies have been used as a human shield by the VCs and they have not gotten what they deserved (2).
(1) The money advanced can likely be moved without
penalty – if there was any requirement to hold the loan advances with
SVB, this cannot be a very hard requirement because the fund is
borrowing precisely to invest the money rapidly. I
wonder if the funds also promised SVB that their portfolio companies
would keep the investment proceeds at SVB, hence the compulsion from the
funds to the portfolio companies…?
(2) revenge is a dish best served cold. The funds
that borrowed their future capital to bet it all on black in the
2020-2021 peak will have torched their entire fund’s investment returns
for good, given the active investment period us typical
four of the ten fund years and they borrowed money from all four of
those years to spray it around in two. So they will get a comeuppance –
but they will probably raise a new fund because there seem to be no
penalties for failure at the top in public life
any more….
The idea that the deposit mix followed or somewhat
followed their loan mix had not occurred to me. That generally makes
sense. But recall also they bought Boston Private Bank and got with that
(and presumably also solicited) wealthy individuals.
NYTimes | On
Saturday, an entrepreneur named Alexander Torrenegra, who was an S.B.V.
depositor for two companies as well as his own personal accounts,
explained what happened on Twitter. “Thursday, 9 AM: in one chat with
200+ tech founders (most in the Bay Area), questions about SVB start to
show up.” he wrote. “10 AM: some suggest getting the money out of SVB for safety. Only upside. No downside.”
It’s
easy to see how a whisper network of a few hundred C.E.O.s — all
convinced they have exceptional vision, all working themselves into a
panic — could spiral out of control. But what happened in that chat is
an extension of the fundamental way that these venture capitalists
operate, which is groupthink on a staggeringly consequential scale.
Top
tier firms like Andreessen Horowitz, Sequoia Capital and Kleiner
Perkins subject candidates to a rigorous screening process that ensures
that only the strongest founders leading the most promising businesses
proceed to the next level. Or that’s what I once believed, anyway. But
the screening process places significant emphasis on “culture fit,”
which is industry speak for whether a founder fits into the venture
capital firm’s full portfolio of companies and conforms to their ideas
about how a founder is supposed to look and behave. A founder’s ability
to navigate this process is considered a good indicator of the company’s
success. Unfortunately for women and people of color, culture fit often
boils down to being a white male engineer with a degree from an elite
university.
Some screening mechanisms
are more subtle, like whether the V.C.s are already in your professional
network, or one or two degrees removed. The industry line is that
relationships will help founders attract capital, talent, and business
partners. True, but the result is a largely homogeneous and even
self-reinforcing community that’s difficult for outsiders to crack.
It’s
this sort of insularity, emphasis on existing relationships, and
reliance on intangible measures of competency that fueled last week’s
bank run. The V.C.s expect the companies in their portfolio to use
approved vendors. When it comes to legal counsel, that generally means
tech-friendly law firms like Morrison & Foerster or Wilson Sonsini.
When it comes to banks, it has meant S.V.B.
S.V.B.,
in turn, assessed its clients’ creditworthiness in part by who their
funders were. As my colleagues and I saw, an investment from a top tier
V.C. could be the ticket to a package of favored services, including things like home mortgages for the founders of these start-ups.
I
opened my account at S.V.B. in 2017, when I had meetings lined up with
some top tier V.C.s to raise money for a digital media company. Like
everyone else who heads to Buck’s of Woodside (a favored venue for
early-stage deal making) with a deck and a dream, I tried to anticipate
the screening mechanisms and make sure I passed. And despite the fact
that I was not a first-time founder, and having worked in tech and tech
adjacent companies, was decently well networked, I suspected they might
regard a 40-year-old woman without an engineering degree as not quite
the culture fit of their dreams. I wasn’t contractually obligated to
bank with S.V.B., but as with so many other unspoken norms, I was aware
that I would be evaluated by my choices.
Disaster
has now struck, but I don’t see any public introspection from the
investment community participants who both helped create the dangerous
conditions and triggered the avalanche by directing portfolio companies
to withdraw en masse.
timesofisrael | Prime Minister Benjamin Netanyahu said Saturday he’d been in touch
with senior Israeli tech figures vowing to assist affected companies.
“If necessary, out of responsibility to Israeli high-tech companies
and employees, we will take steps to assist the Israeli companies, whose
center of activity is in Israel, to weather the cash-flow crisis that
has been created for them due to the turmoil,” Netanyahu said in a
statement.
Finance Minister Bezalel Smotrich said he was forming a special team
to look into the potential consequences for Israel from the collapse,
which will include the director general of the Treasury and officials
from the Bank of Israel, Securities Authority and Innovation Authority.
NextVision, a maker of micro stabilized cameras, said it managed on
Thursday to withdraw almost all of the $2.7 million it held in its
account at SVB, according to a regulatory filing to the Tel Aviv Stock
Exchange.
Qualitau Ltd, a developer of test equipment for the semiconductor
industry, said it held $16.8 million at SVB out of a total of about
$22.3 million it has in and outside the US.
In a statement to the TASE, the company disclosed that it has “no
information regarding the amounts it will be able to withdraw in the
future from the balance of the funds deposited in SVB and in relation to
the timing when it will be possible to withdraw these funds.”
“The company believes that despite the material impact of the event,
taking into account the cash balance of the customers, the existing
balance, and the backlog of orders (…) it is able to continue its
activities during the normal course of business.”
Israel’s two largest banks, Bank Leumi and Bank Hapoalim, set up a
situation room that has been operating around the clock to help firms
transfer their money from SVB — before it was seized — to accounts in
Israel. Over the past few days, teams at LeumiTech, the high-tech
banking arm of Bank Leumi, have been able to help their Israeli clients
transfer about $1 billion to Israel, the bank said.
LeumiTech said it will provide financing assistance and loans to
startups and other tech firms that were left without access to credit
lines and liquidity due to SVB’s collapse.
“I promise that we will continue to do everything to help and
accompany the companies and startups to safely overcome the challenges
and continue to support their growth,” said LeumiTech CEO Timor
Arbel-Sadras.
To help tech companies in immediate distress, Poalim Hi-Tech opened a
hotline offering bridge loans for the purpose of assisting companies in
paying salaries in the coming month against their commitment to
transfer deposit funds to their bank accounts in Israel.
Meanwhile, venture capital funds hoping that a fast solution will be
found in the form of a buyer that will purchase SVB as a going concern
or a federal bailout that will quickly get money to affected depositors.
Alan Feld, co-founder and managing partner of Israeli tech investment
firm Vintage Investment Partners, called on “regulators globally to
allow SVB to be acquired and recapitalized so that this wonderful bank
can serve all of us for the next 20 years.”
“Silicon Valley Bank has been a wonderful partner to Vintage and its
portfolio funds and companies since we started our firm 20 years ago,”
Feld said in a LinkedIn post.
It was not the venture-capital backed companies that chose or agreed to
keep all their deposits at SVB. It was their venture capital investors
that forced this arrangement on them, confirmed by a reader: “Speaking
as a former customer as dictated by my VCs.” This distinction matters
because it puts the locus of influence and favor-trading much higher up
the food chain.
nueberger |It’s highly possible, one could even say likely, that those
massive deposits — Roku alone kept almost half a billion dollars in a
single account — were part of a corrupt set of practices by the bank itself and its big-dollar clients.
SVB would typically require, as part of its venture debt investments into emerging companies, that the money would be held in an account with SVB. SVB would then offer concierge, I think they called it white glove, services to the founders including personal LOCs, mortgages etc.
David Dayen, in an excellent, comprehensive piece, writes:
“So you have depositors that either didn’t know the first thing about
risk management, or were bribed by the bank into neglecting it.”
Keep
in mind who these depositors are: the very very wealthy in the West
Coast venture capital world. The corruption didn’t start just with the
bank. The VCs often initiated it. As a friend and former Silicon Valley
entrepreneur pointed out to me recently:
SVB
was a special case. VCs required the companies they funded to keep their
cash there. So the companies (and their employees) really were victims,
not incompetent at risk management. In exchange the VCs received
various favors from the bank. This is how Silicon Valley works behind
the scenes. I was in one deal where the lead VC for our
funding required a secret kickback of a certain % of the company stock
and that this arrangement be kept secret from the firm. This is typical.
Where Does That Leave Us, Part I
Where
that leaves us is here: The U.S. banking system, which hasn’t been
private in my recent memory, has been officially taken under the wing of
the federal government, with every deposited dollar now de factoinsured by the FDIC.
The Fed says its new lending facility is big enough to cover all US uninsured deposits and that it is "prepared to address any liquidity pressures that may arise" https://t.co/XwS40BS4hk@FinancialTimes
To
cover these claims, the FDIC normally collects money from the banks
receiving the insurance benefit. This means that the covered banks
prepay a reasonable amount for a bailout of depositor funds up to
$250,000 per account.
What would a “reasonable amount” be to
cover all funds on deposit in the U.S.? Are the banks willing to prepay
it? Highly unlikely. After all, who’s going to make them? The government
they control?
So the federal government has nationalized the
banking system, or nationalized its insurance of bank deposits to 100%
of risk, all at no new cost to the banks.
What do you think these banks will do next, with that worry off their backs? I hesitate to find out, but I know we’re about to.
Where Does That Leave Us, Part II?
The
second “where does that leave us?” leaves the financial realm and
enters the political. If Saagar Enjeti is right (see the clip above),
the rich decided that taking even a 10% loss (“haircut”) via the normal
unwinding process was still too big an ask.
Meanwhile, in East Palestine OH where the working class makes its life, this went on:
With a population of about 5,000 people, there are roughly 2,600 residential properties in East Palestine
according to Attom, a property data provider. The average value of a
property there in January of this year, prior to the derailment, was
$146,000, according to Attom.
Taken together, the value of
all residential real estate in the town adds up to about $380 million,
including single family homes and multi-family properties.
Those
values are only a fraction of the money that Norfolk Southern earns.
Last year it reported a record operating income of $4.8 billion, and a
net income of $3.3 billion, up about 9% from a year earlier. It had $456
million in cash on hand on its books as of December 31.
It’s been returning much of that profit to shareholders, repurchasing $3.1 billion in shares last year and spending $1.2 billion on dividends. And it announced a 9% increase in dividends just days before the accident.
A
year ago its board approved a $10 billion share repurchase plan, and it
had the authority to buy $7.5 billion of that remaining on the plan as
of December 31. (Emphasis added)
The point couldn’t
be more simple. When the wealthy face losses, the government they
control bails them out, within days if necessary.
When the rest
of us faces losses, we’re on our own. Neither the wealthy who caused the
mess nor the government that represent “the people” will step up to the
plate.
And it will be this way forever unless force is applied.
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