Venture Capitalists Dictated The Use Of These Failed Incompetently Run Banks

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.

— Dhananjay (DJ) Ghildyal (@Dj_Ghildyal) March 12, 2023

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 facto insured 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

— Colby Smith (@colbyLsmith) March 12, 2023

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.

A Lot Of Crypto Cash Was Parked At SVB - So..., Our Real Money Bailed Out Their Fake Money?

decrypt  |  As the fallout from the stunning collapse of Silicon Valley Bank (SVB) plays out, numerous crypto companies have signaled their exposure to the bank, which long maintained a reputation as one of the most prominent lenders to tech startups in the world.

The bank’s closure Friday by the California Department of Financial Protection marked the second-largest bank failure in American history, after the undoing of Washington Mutual during the financial crisis of 2008. Silicon Valley Bank reported $212 billion in assets last quarter.

The stock (SIVB) began spiraling late Wednesday after rumors circulated that the institution was seeking an acquisition after failing to raise sufficient capital to cover its obligations. In the hours and days that followed, numerous venture capital funds reportedly advised their clients to withdraw their funds, resulting in $42 billion of withdrawals initiated on Thursday, constituting a run on the bank. On Friday morning, the Nasdaq halted trading of SIVB shares.

Though it was venture capital firms and tech startups that were most severely affected by the SVB scare on Friday, numerous crypto companies have also disclosed their exposure to the bank. Here’s a running list of the crypto firms caught in the crosshairs of SVB's collapse, along with those that have publicly claimed they avoided the damage.

Note: On Sunday, U.S. Federal Reserve Chairman Jerome Powell, Treasury Secretary Janet Yellen, and Federal Deposit Insurance Corporation (FDIC) Chairman Martin Gruenberg issued a joint statement saying that all Silicon Valley Bank depositors would be made whole and have access to their funds on Monday, March 13. The Federal Reserve is now investigating the bank's failure.

Crypto companies that had money in SVB

What Do Silvergate, SVP, And Signature Bank Have In Common With The Nordstream Pipelines?

Counterpunch  |  The crashes of Silvergate, Silicon Valley Bank, Signature Bank and the related bank insolvencies are much more serious than the 2008-09 crash. The problem at that time was crooked banks making bad mortgage loans. Debtors were unable to pay and were defaulting, and it turned out that the real estate that they had pledged as collateral was fraudulently overvalued, “mark-to-fantasy” junk mortgages made by false valuations of the property’s actual market price and the borrower’s income. Banks sold these loans to institutional buyers such as pension funds, German savings banks and other gullible buyers who had drunk Alan Greenspan’s neoliberal Kool Aid, believing that banks would not cheat them.

Silicon Valley Bank (SVB) investments had no such default risk. The Treasury always can pay, simply by printing money, and the prime long-term mortgages whose packages SVP bought also were solvent. The problem is the financial system itself, or rather, the corner into which the post-Obama Fed has painted the banking system. It cannot escape from its 13 years of Quantitative Easing without reversing the asset-price inflation and causing bonds, stocks and real estate to lower their market value.

In a nutshell, solving the illiquidity crisis of 2009 that saved the banks from losing money (at the cost of burdening the economy with enormous debts), paved away for the deeply systemic illiquidity crisis that is just now becoming clear. I cannot resist that I pointed out its basic dynamics in 2007 (Harpers) and in my 2015 book Killing the Host.

Accounting fictions vs. market reality

No risks of loan default existed for the investments in government securities or packaged long-term mortgages that SVB and other banks have bought. The problem is that the market valuation of these mortgages has fallen as a result of interest rates being jacked up. The interest yield on bonds and mortgages bought a few years ago is much lower than is available on new mortgages and new Treasury notes and bonds. When interest rates rise, these “old securities” fall in price so as to bring their yield to new buyers in line with the Fed’s rising interest rates.

A market valuation problem is not a fraud problem this time around.

The public has just discovered that the statistical picture that banks report about their assets and liabilities does not reflect market reality. Bank accountants are allowed to price their assets at “book value” based on the price that was paid to acquire them – without regard for what these investments are worth today. During the 14-year boom in prices for bonds, stocks and real estate this undervalued the actual gain that banks had made as the Fed lowered interest rates to inflate asset prices. But this Quantitative Easing (QE) ended in 2022 when the Fed began to tighten interest rates in order to slow down wage gains.

When interest rates rise and bond prices fall, stock prices tend to follow. But banks don’t have to mark down the market price of their assets to reflect this decline if they simply hold on to their bonds or packaged mortgages. They only have to reveal the loss in market value if depositors on balance withdraw their money and the bank actually has to sell these assets to raise the cash to pay their depositors.

That is what happened at Silicon Valley Bank. In fact, it has been a problem for the entire U.S. banking system.

SVB Israel Sizzle: OY VEY!!!

Tablet  | So what sort of investments did SVB make that went bad? One type of startup appears to have occupied a large amount of space on the bank’s balance sheet: eco-tech innovators, which traditionally require large upfront investments to get off the ground. According to the bank’s website, more than $3.2 billion of its funds were invested to finance companies in “clean tech, climate tech, and sustainability industry, including solar, wind, battery storage, fuel cell, utility storage and more.” The bank’s investment in such virtuous technologies is so massive that 60% of community solar financing nationwide involves SVB. Just last week, the bank hosted Winterfest, a shindig for the climate-tech sector, at the Lake Tahoe Ritz-Carlton.

In other words, the darling financial institution of the tech industry, which donates heavily and almost exclusively to the Democratic Party, is now bankrupt in part because it spent heavily on the Democratic Party’s pet causes. SVB’s demise was followed at the end of last week by the collapse of New York’s Signature Bank, which had former Democratic regulatory guru Barney Frank on its board, and which famously stepped into the political fray in January 2021 when it cut its long-standing ties with Donald Trump and urged the president to resign.

This may help explain why Democrat-supporting big-time investors are now pressing President Joe Biden to bail out SVB. But as the president announced, he doesn’t need to do almost anything to help the banks that fund his supporters and his party’s ideological agenda: For that, there are bank fees. According to a 2020 survey, bank fees are hitting record highs, with monthly service fees now at $15.50 on average for accounts that don’t meet an ever-increasing minimum monthly balance, now at an all-time high of $7,550.

Let’s put it simply: If you have a million dollars in the bank, you suffer no consequences. If you have $10 in the bank, you have to pay the bank $15 for the privilege of keeping it there, which means you owe the bank $5. Bank fees are among our most shockingly regressive forms of taxation. When the Biden administration promises that there’ll be no bailouts and that no one will lose any money from SVB’s collapse, what they mean is that the bailouts will be paid for by the poor, not by the banks.

What to make of all this? Two immediate lessons come to mind.

First, the collapse of FTX (which gave tens of millions to Democratic Party candidates and causes), SVB, Signature Bank, and the financial institutions that will surely follow isn’t part of some complex financial machination inscrutable to all but the savviest among us. It’s part of the very same rot that has already claimed our universities, our media, and other institutions crucial to the functioning of a civil society.

SVB was the financier of choice of one political party’s donor base. It overwhelmingly paid for projects that fit that party’s agenda. And it employed people who expended a lot of time and energy preaching its gospel: The bank’s head of financial risk management in the U.K., for example, Jay Ersapah, took to the internet enthusiastically to both identify herself as “a queer person of color” and announce that she had helped launch no less than six employee resource groups at SVB, designed to “raise the visibility of multiple dimensions of diversity.” As the saying goes, you get what you paid for.

These ideological convictions aren’t coincidences. They’re requirements. Just as you have to pledge your allegiance to the most woke of persuasions to get tenure, and just as you may no longer be a part of a major American newsroom unless you see yourself as fully committed to seeing virtually any Republican as an enemy of life, liberty, and the pursuit of happiness, you may no longer be a part of the financial system unless you’re ready to support leftist candidates and causes.

The consequences of party control spreading from universities and media to professional organizations and financial institutions are now plain. It’s one thing when the ideological rot on campus leads to a gaggle of law students honking at a circuit judge; it’s another when the same convictions lead investors and regulators to slow-clap as billions vanish from their accounts, knowing that doing so is now a requirement of their jobs, and the costs will be passed on to taxpayers.

The second lesson that may be learned from SVB’s collapse applies only to Israelis, but it’s no less urgent: Sure, the Jewish state’s local customs and arrangements are flawed in many ways, but importing American-style politics and culture, at this particular moment in time, is a very bad idea. America is no longer a liberal bulwark against the storm. It is the storm. Emulating America means more contempt for voters, more erosion of norms in the name of abstract virtue, more mistrust, and, eventually, bankruptcy.

The solutions are simple: Keep politics in the parking lot. Keep banks focused on banking. Bring back trustworthy, nonpartisan regulation—the loss of which, in all fairness, was brought about as much, if not more, by Republicans as it was by Democrats. Resist the whole-of-society blob model you get when a political party merges with the tech industry and federal bureaucracies and leading newspapers and professional organizations and financial institutions and everyone become too big to fail. And realize that what’s true for the richest and most powerful country in history is even more true for Israel, a country where failure would be truly catastrophic—and is always just around the corner.

Rescuing Anything Touched By SVB Is A Catastrophic Policy Error

wired  |  When Silicon Valley Bank collapsed on March 10, Garry Tan, president and CEO of startup incubator Y Combinator, called SVB’s failure “an extinction level event for startups” that “will set startups and innovation back by 10 years or more.” People have been quick to point out how quickly the cadre of small-government, libertarian tech bros has come calling for government intervention in the form of a bailout when it’s their money on the line.

Late yesterday, the US government announced that SVB depositors will regain access to all their money, thanks to the Federal Deposit Insurance Company's backstop funded by member banks. Yet the shock to the tech ecosystem and its elite may still bring down a reckoning for many who believe it’s got nothing to do with them.

SVB’s 40,000 customers are mostly tech companies—the bank provided services to around half of US startups—but those tech companies are tattooed into the fabric of daily lives across the US and beyond. The power of the West Coast tech industry means that most digital lives are rarely more than a single degree of separation away from a startup banking with SVB.

The bank's customers may now be getting their money back but the services SVB once provided are gone. That void and the shock of last week may cause—or force—startups and their investors to drastically change how they manage their money and businesses, with effects far beyond Silicon Valley.

Most immediately, the many startups who depended on SVB have workers far from the bank’s home turf. “These companies and people are not just in Silicon Valley,” says Sarah Kunst, managing director of Cleo Capital, a San Francisco firm that invests in early-stage startups.

Y Combinator cofounder Paul Graham said yesterday that the incubator’s companies banking with SVB have more than a quarter of a million employers, around a third of whom are based outside California. If they and other SVB customers suffer cash crunches or cut back expansion plans, rent payments in many parts of the world may be delayed and staff may no longer buy coffees and lunches at the corner deli. Cautious about the future, businesses may withhold new hires, and staff who remain may respond in kind, cutting local spending or delaying home purchases or renovation work.

The second- and third-order impacts of startups hitting financial trouble or just slowing down could be more pernicious. “When you say: ‘Oh, I don’t care about Silicon Valley,’ yes, that might sound fine. But the reality is very few of us are Luddites,” Kunst says. “Imagine you wake up and go to unlock your door, and because they’re a tech company banking with SVB who can no longer make payroll, your app isn’t working and you’re struggling to unlock your door.” Perhaps you try a rideshare company or want to hop on a pay-by-the-hour electric scooter, but can’t because their payment system is provided by an SVB client who now can’t operate.

Biden Administration Effectively Nationalized The American Banking System

market-ticker  |  Next up - Republic, which apparently had lines out the door (if you believe the Internet) on Saturday.  Again: So what?

Folks, bubbles attract stupidity.  Stupidity is a constant in the universe; in fact it is likely the only thing that is truly infinite (with all due respect to the late Mr. Einstein.)

The so-called "Chief Risk Officer" at SVB had a masters in..... public administration.  Anyone care to bet if she passed any form of advanced mathematics -- you know, like for example Calculus or Statistics?  Do you think she understood exponents and why this graph made clear that concentration of risk and duration was stupid and likely to blow up in everyone's face -- including hers?

How about Bill Ackman and the others on the Internet screaming for a bailout?  How about the CFOs of public companies like Roku that stuck several hundred million dollars in said bank?  Was it not widespread public knowledge (and available to anyone who took 15 minutes to do research, which you'd think someone would do before putting a hundred million bucks somewhere) that this institution was chock-full of VC-funded startup companies which, historically fail 90% of the time and their debt becomes impaired or even worthless?

Where are the indictments for fiduciary malfeasance among these people?

It takes a literal five minutes with Excel to prove to yourself that if debt is rising faster than GDP no matter the interest rate eventually the interest payments on that debt will exceed all of the economy.  This of course is impossible because you cannot use over 100% of anything as its not there, but long before you reach that point you're going to have trouble putting food on the table, fuel in the vehicle and paychecks are going to bounce.  It was for this reason that one of the first sections in my book Leverage, written after the 2008 blowup which I chronicled and laid bare upon the table featured exactly this chart.

The last bit of insanity was just 15 years ago by my math.  Did we fix it?  No.  What was featured in the stupidity of 2008?  Allowing banks to run with no reserves.  Who did that?  Ben Bernanke, who got it into the TARP bill that eventually passed and which I reported on at the time.  It accelerated that which was already going to happen because Congress is full of people who think trees grow to the moon, leverage is never bad and exponents are a suggestion.

Oh by the way, your local Realtor thinks so to as does, apparently, the former SVB "risk officer" who, it is clear, didn't understand exponents -- or didn't care.

The simple reality is that it must always cost to borrow money in real terms.  This means the rate of interest must be positive in said real terms, which means across the curve rates must be higher than inflation -- again, in real terms, not in "CPI" which has intentional distortions in it such as "Owner's Equivalent Rent" when you're not renting a house, you're buying it.  Had said "CPI" actually had home prices in it then it would have shown a doubling in many markets in that section of the economy over the last three years.

In other words housing alone would have resulted in a roughly 10% per year inflation rate, plus all the other increases, which means the Fed Funds rate should have been 300bips or so beyond that all the way back to 2020 -- which would put Fed Funds at about 13% for the last three years.

It isn't of course but if it had been then all those "housing price increases" would not have happened at all.  Incidentally even today the Fed Funds rate is below inflation and thus the crazy is still on.

It's a bit less on however, and now you see what happens when even though they're still nuts being slightly "less" nuts means that these firms are no longer capable of operating without the wild-eyed crazy; even a slight reduction of the heroin dose caused them to fail.

Never mind the wild-eyed poor choices of executives (who signed off on all of this?) at SVB which the regulators all knew about and ignored.  The CEO?  A director of the San Francisco Federal Reserve.  Why don't you look up a few of the other "chief" positions and what they used to do.  Bring a barf bag.  No, really.

And what did Forbes think of all this?  Why it was good for five straight years of SVB being rated one of their BEST BANKS!

Negative real rates are never sustainable.  The insidious nature of that nonsense is that it extends duration in pre-payable debt, specifically mortgages.  Mortgages have had a roughly 7 year duration forever, despite most of them being 30 year paper nominally because people move for other than necessity reasons (e.g. "I want a bigger house", "I want to live here rather than there" and so on.)  A huge percentage of said paper was issued at 3% and now is double that or more.  Since a mortgage is not transportable (when you sell the house you extinguish the old one and take a new one) and changing that retroactively would be both wildly illegal and ruin everyone holding said paper you can't retroactively patch the issue -- which is that now nobody with a 3% mortgage is going to prepay it and move unless they have to and so the duration is extending and will continue for the next couple of decades.  This in turn means if you have a 3% mortgage bond, the new ones are 7% and there's 10 years left on the reasonable expectation of its life you're now going to have to discount the face value by the difference in interest rate times the remaining duration or I won't buy it since I can buy the new one at the higher rate!  This is not a surprise and that it would happen and accelerate was known as soon as inflation started to rise and thus force The Fed to withdraw liquidity.  The Fed cannot stop because inflation is a compound function and at the point it forces necessities to be foregone the economy collapses and, if continued beyond that point THE GOVERNMENT collapses because tax revenue wildly drops as well.  The only sound accounting move at that moment in time as a holder of said paper was to dispose of the duration or immediately discount the value of that paper to the terminal rate's presumption and adjust as required on a monthly basis.

Nobody did this yet to not do it is fraud as these are not only expected outcomes they're certain.

Where was the OCC on this that is supposed to prevent such mismatches from impairing bank capital?  How about The Fed itself, or the FDIC?  The San Francisco Fed was obviously polluted as the CEO was on their board (until he was quietly removed on Friday) but isn't it interesting that all these people who were intimately involved in firms that blew up in 2008 were concentrated in one place in executive officers with direct fiduciary responsibility?

And isn't it further quite-interesting that all the screaming you're hearing right now is about how "terrible" it will be that "climate change" related firms will be unable to make payroll and the new upcoming VC-funded startups won't because their favorite conduit has been disrupted?  What's that about -- the entire premise of these firms requires them to not only force their startups to bank in specific places with large amounts of money (since they don't earn anything they have to have access to and consume tens of millions or more a year) but cash management, you know, putting all of it other than what you need to make payroll next week in 4 week bills is too much to ask?

There's a rumor floating around (peddled by Bloomberg) that over one hundred venture and investment firms, including Sequoia, have signed a statement supporting SVB and warning of an "extinction-level event" for tech firms.  Really?  Extinction for technology or extinction for cash-furnace nonsense funded by negative real interest rates which make all manner of uneconomic things look good but require ever-expanding, exponentially-so, levels of debt issuance?

Again, that is not possible on a durable basis and once again the reason why is trivially discernable with 5 minutes and an Excel spreadsheet and graph.  It takes about an hour to do it manually using graph paper, a basic 4-function calculator or the capacity to perform basic multiplication on said paper and a pencil.

It's Decentralized Bro, That Means It's Safer Bro, Please Believe Me Bro!!!

 CNBC  |  The two biggest banking institutions serving crypto businesses in the U.S. have shut down in the last four days. Investors have worried that the collapse of Signature Bank, whose assets were seized Sunday evening by regulators, was inevitable following the impending liquidation of Silvergate Bank and given the increasing regulatory hostility toward crypto companies. Now that event is past us, and has left young U.S.-based crypto startups with few options for banking relationships. 

 “There’s kind of a black mark on crypto deposits for the next few weeks,” said Conor Ryder, research analyst at Kaiko. “It could be that one of the smaller banks decides to raise their hand and take on the deposits but I don’t think they’ll be jumping on that opportunity after everything was done over the weekend.” The biggest priorities for the industry now are around diversifying on-ramps into crypto and focusing on policymaker education. 

 Before the end of Silvergate and Signature, the regulatory crackdown on crypto had already started. The days before the industry had crypto-forward banks to turn to were some of the darkest for the industry. The inability to form banking relationships was a big obstacle to growth. At the end of February, three major banking regulators issued a joint statement warning banks of the liquidity risks associated with banking crypto companies. In January, the Wyoming-chartered special purpose depository institution and famously unleveraged Custodia Bank set off the de-banking wave when its application to become a member institution of the Federal Reserve was denied. “Banks and law firms are getting a clear message from regulators: distance yourselves from crypto companies,” said Ric Edelman, founder of the Digital Assets Council of Financial Professionals. “This is blatant bias without legal standing, and if sustained, it will harm U.S. innovation for decades to come,” he said of the Signature closure. “But for the moment, crypto companies are increasingly finding themselves where cannabis companies were a decade ago.” 

Stablecoins in focus Stablecoin regulation is set to take center stage with the industry scrambling for banking alternatives, according to various crypto market participants who are skeptical the remaining banking institutions will welcome crypto with open arms. One of the most clear paths forward is for crypto firms to transact in stablecoins. “We’ve seen stablecoins crypto-pairs rise to an all-time high 90% of trading volume on exchanges, up from 79% a year ago, at the expense of the dollar,” Ryder said. “The industry has become less and less reliant on the U.S. dollar and crypto firms are familiar with stablecoins, so this could be a smoother transition than people expect.” Stablecoins also satisfy the need for 24/7 payment rails, he added. 

Both Silvergate and Signature offered a service that allowed fiat money to easily flow into crypto assets. Even if another bank opened its arms to crypto companies, the industry is still feeling the loss of the Silvergate Exchange Network and Signature’s Signet platform. Kaiko reported Monday that liquidity is already suffering at U.S. exchanges. Gemini’s was down 74% in for the month, while Coinbase’s fell 50% and liquidity at Binance.US dropped 29%. Binance, however, suffered a smaller, 13% impact. The problem with the stablecoin route is it concentrates trust in a handful of stablecoin issuers, who would likely need to be more heavily regulated, Ryder said. Over the weekend Circle’s USDC stablecoin broke its peg to the U.S. dollar, dropping below 87 cents. The frenzy came after Circle said it has about $3.3 billion in SVB. It regained its peg Monday.

Uninsured Bank Depositor Bailouts Make A Mockery Of "Too Big To Fail"

 nationalreview |  The 2008 financial collapse and resulting Wall Street bailout popularized the concept of “too big to fail” — the idea that certain institutions were so massive, and so intertwined with the rest of the financial system, that their failure could trigger a complete meltdown of the economy. 

Kinda insane that this entire debacle was potentially caused by @ByrneHobart's newsletter. Here's how the butterfly effect happened.

1) Byrne posts this article/Tweet calling out SVB's risk.
2) Pretty much every VC I know reads this newsletter
3) They all start to pay very,… https://t.co/zUSKF1ZW4J

— Evan Armstrong 📧 (@itsurboyevan) March 11, 2023

While I opposed that bailout on ideological grounds, I at least recognized the tremendous risk that the implosion of the nation’s major investment banks would pose for the broader financial system. But Sunday’s decision by regulators to bail out uninsured depositors of the failed Silicon Valley Bank would dramatically lower the threshold for federal intervention in financial markets. 

To be sure, there are reasons to believe the collapse of SVB carries broader consequences. While the FDIC guarantees deposits up to $250,000, the overwhelming majority of SVB deposits exceeded that amount. It was the bank of choice for many tech start-ups. Without access to their cash, those companies would have difficulty meeting payroll. Additionally, the sudden collapse of SVB could lead companies and individuals who have deposits in other similar financial institutions to withdraw their money starting on Monday, triggering more bank runs, and more bank collapses. 

While regulators are not stepping in to rescue SVB as an institution, the Treasury Department, Federal Reserve, and FDIC have announced that they will make sure that all depositors at SVB as well as another failed institution, Signature Bank, will have access to their money on Monday even if those deposits exceed the $250,000 threshold. In a statement, regulators promise, “No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”  

Defenders of this decision will try to make it seem as if it’s an extraordinary, one-off decision by regulators, but in practice, it has created a huge moral hazard by signaling that the $250,000 FDIC limit on deposit insurance does not exist in practice. The clear signal it sends is that when financial institutions make poor decisions, the government will swoop in to clean up the mess. There are plenty of ways in which poor decisions made by financial institutions could have larger implications. But in 2008, the justification for intervention was systemic risk. 

This was not a case in which the whole economy would be threatened if an intervention were not taken. There would be disruption to a number of companies in the tech sector and their employees, as well as potential problems for similarly situated financial institutions. But the vast majority of banks are well capitalized right now, and there is no credible risk of this causing a complete financial meltdown. 

In fact, it isn’t even clear that depositors were going to be wiped out, absent federal intervention. When SVB was shut down, it still had real assets that were worth money, which can be sold to pay back investors. Due to poor risk management, what they were not able to do is avoid a panic in which a large number of depositors tried to withdraw their money at the same time, which is what happened last week. Under one estimate from a Jefferies analyst, when liquidated, SVB has the assets to pay off 95 percent of deposits. This is no doubt one reason why regulators are stating so confidently that they don’t expect this to cost taxpayers money. Another reason is that they claim any losses incurred would be repaid by “a special assessment on banks” which will inevitably end up being passed on to their customers. 

Anybody who considers themselves a free-market conservative should be especially concerned about this action. Regardless of the particulars, it will just add to the talking point that when Wall Street or well-connected tech companies are in trouble, the government swoops in to the rescue. And yet lawmakers won’t eliminate student debt, give away free health care, pay for child care, guarantee affordable housing . . . and insert whatever cause you like. If you support socialism for tech companies, don’t be surprised when you get it for everything else.

Democrat Overreach On Civil Liberties As Bad As Banking Dependency On Derivatives

racket  |  The campaign against “disinformation” in this way has become the proxy for a war against civil liberties that probably began in 2016, when the reality of Donald Trump winning the Republican nomination first began to spread through the intellectual class. There was a crucial moment in May of that year, when Andrew Sullivan published “Democracies End When They Are Too Democratic.”

This piece was a cri de coeur for the educated set. I read it on the way to covering Trump’s clinching victory in the Indiana primary, and though I disagreed with its premise, I recognized right away that Andrew’s argument was brilliant and would have legs. Sullivan described Plato’s paradoxical observation that “tyranny is probably established out of no other regime than democracy,” explaining that as freedoms spread and deference to authority withered, the state would become ungovernable:

The very rich come under attack, as inequality becomes increasingly intolerable. Patriarchy is also dismantled: “We almost forgot to mention the extent of the law of equality and of freedom in the relations of women with men and men with women.” Family hierarchies are inverted: “A father habituates himself to be like his child and fear his sons, and a son habituates himself to be like his father and to have no shame before or fear of his parents.” In classrooms, “as the teacher ... is frightened of the pupils and fawns on them, so the students make light of their teachers.” Animals are regarded as equal to humans; the rich mingle freely with the poor in the streets and try to blend in. The foreigner is equal to the citizen.

And it is when a democracy has ripened as fully as this, Plato argues, that a would-be tyrant will often seize his moment.

It was already patently obvious to anyone covering politics in America that respect for politicians and institutions was vanishing at warp speed. I thought it was a consequence of official lies like WMD, failed policies like the Iraq War or the financial crisis response, and the increasingly insufferable fakery of presidential politics. People like author Martin Gurri pointed at a free Internet, which allowed the public to see these warts in more hideous technicolor than before.

Sullivan saw many of the same things, but his idea about a possible solution was to rouse to action the country’s elites, who “still matter” and “provide the critical ingredient to save democracy from itself.” Look, Andrew’s English, a crime for which I think people may in some cases be excused (even if I found myself reaching for something sharp when he described Bernie Sanders as a “demagogue of the left”). Also, his essay was subtle and had multiple layers, one of which was an exhortation to those same elites to wake up and listen to the anger in the population.

Unfortunately, post-election, each successive version of what was originally a careful and subtle “Too Much Democracy” idea became more simplistic and self-serving. By 2019 the shipwreck of the Weekly Standard, the Bulwark, was publishing “Too Much Democracy is Killing Democracy,” an article which insisted it wasn’t an argument for the vote to be restricted, but “it is an argument for a political, social, and cultural compact that makes participation by many unnecessary.” Soon we had people like Joan Donovan of Harvard’s Shorenstein Center leading the charge for “de-platforming,” not as a general principle of course, but merely as a “short-term” solution. In its own way it was very Trumpian thinking: we just need to clamp down on speech until we can “figure out what is going on.”

Still, as far back as 2016, the RAND Corporation conducted a study showing the phrase most predictive of Trump support was “people like me don’t have any say.” This was a problem of corporate and financial concentration invisible to people of a certain class. As fewer and fewer people were needed to run the giant banking or retail delivery or communications machines of society, there were more and more going straight from college back to their parents’ houses, where they spent their days fighting voice-mail programs just to find out where to send their (inevitably unanswered) job applications. This was going to inspire some angry tweets, and frankly, allowing all of them was the least the system could do.

Instead of facing the boiling-ever-hotter problem underneath, the managerial types decided — in the short term only, of course — to mechanically deamplify the discontent, papering things over with an expanding new bureaucracy of “polarization mitigation,” what Michael calls the Censorship-Industrial Complex. Instead of opening society’s doors and giving people roles and a voice, those doors are being closed more tightly, creating an endless cycle of anger and reaction.

Making a furious public less visible doesn’t make it go away. Moreover, as we saw at the hearing, clamping down on civil liberties makes obnoxious leaders more conspicuous, not less. Democrats used to understand this, but now they’re betting everything on the blinders they refuse to take off, a plan everyone but them can see won’t end well.

Old Cornpop To The Rescue!!! Don't You Feel Better Now?

kunstler  |  Since banks today exist in a vast matrix of interconnected obligations — promises to pay this-and-that — fear grows that the rot from one bank, such as SVB, will infect many other banks that are no longer able to keep their promises about paying this-and-that, leading to a daisy-chain of things not getting paid. For an economy, that’s about the same as the blood ceasing to circulate in a body.

      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 ole 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 US treasury paper holders to dump what they can while there’s still some value to retrieve. But the US has to issue more debt for all the bail-outs and theoretical buyers of new debt will perforce bid up the rates to keep up with inflation… and yet the US 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….

The FBI Found No Evidence Of January 6th Planning Or Coordination Outside Of Its Own

reuters  |  The FBI has found scant evidence that the Jan. 6 attack on the U.S. Capitol was the result of an organized plot to overturn the presidential election result, according to four current and former law enforcement officials.

Though federal officials have arrested more than 570 alleged participants, the FBI at this point believes the violence was not centrally coordinated by far-right groups or prominent supporters of then-President Donald Trump, according to the sources, who have been either directly involved in or briefed regularly on the wide-ranging investigations.

Kash Patel calls on Tucker Carlson to release footage of undercover feds:

"Ray Epps was on FBI's most wanted list one day, and the next day he was off. There are only two ways that happens: you die, or you are an informant. Jill Sanborn, the head of the FBI counterintelligence… https://t.co/RALaXMKxX3 pic.twitter.com/8DJXX5JN1z

— kanekoa.substack.com (@KanekoaTheGreat) March 8, 2023

"Ninety to ninety-five percent of these are one-off cases," said a former senior law enforcement official with knowledge of the investigation. "Then you have five percent, maybe, of these militia groups that were more closely organized. But there was no grand scheme with Roger Stone and Alex Jones and all of these people to storm the Capitol and take hostages."

Stone, a veteran Republican operative and self-described "dirty trickster", and Jones, founder of a conspiracy-driven radio show and webcast, are both allies of Trump and had been involved in pro-Trump events in Washington on Jan. 5, the day before the riot.

FBI investigators did find that cells of protesters, including followers of the far-right Oath Keepers and Proud Boys groups, had aimed to break into the Capitol. But they found no evidence that the groups had serious plans about what to do if they made it inside, the sources said.

Prosecutors have filed conspiracy charges against 40 of those defendants, alleging that they engaged in some degree of planning before the attack.

They alleged that one Proud Boy leader recruited members and urged them to stockpile bulletproof vests and other military-style equipment in the weeks before the attack and on Jan. 6 sent members forward with a plan to split into groups and make multiple entries to the Capitol.

But so far prosecutors have steered clear of more serious, politically-loaded charges that the sources said had been initially discussed by prosecutors, such as seditious conspiracy or racketeering.

The FBI's assessment could prove relevant for a congressional investigation that also aims to determine how that day's events were organized and by whom.

Senior lawmakers have been briefed in detail on the results of the FBI's investigation so far and find them credible, a Democratic congressional source said.

The chaos on Jan. 6 erupted as the U.S. Senate and House of Representatives met to certify Joe Biden's victory in November's presidential election.

 

Why Didn't The House Select Committee Interview Officer Tarik Johnson?

Slate |  Carlson also made a big show of his “exclusive” interview with Tarik Johnson, a former Capitol officer who has actually been interviewed before by NPR. The House’s select committee on Jan. 6 did a fine job of connecting larger dots, drawing a straight line from the Stop the Steal rhetoric through to the insurrection. But though it interviewed Capitol police officers, it skipped an interview with Johnson, who was pictured that day wearing a MAGA hat. “The frontline officers and supervisors were not prepared at all,” Johnson said on the air. He told Carlson he asked leadership for direction after the Capitol was breached. “I got no response,” he said. (He said that he used the MAGA hat to avoid being assaulted by the crowds of rioters himself; the Capitol police have denied no one responded to Johnson.) Johnson offered seemingly sincere answers to Carlson’s leading and partisan questions, and gave Carlson’s audience a fair representation of the riot: “They focused on Donald Trump, not the failures of the Capitol police,” he said of the committee. “Some people there had planned on being violent. Some people may have turned violent after what they were going through. I think people wanted to support their president. Some of those people just wanted to support him, and some of those people didn’t commit violence, and some of those people didn’t plan on it.”