Tuesday, March 21, 2023

Understanding The Needless $300 Billion Gift Of Peasant $$ To Already Rich Oligarchs

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.

SVB’s “chief business was making loans through fund subscription lines to venture capital firms“, MarketWatch reported.

“The same venture capital investors that the bank had supported for years ended up killing it”, the website summarized.

Forbes cited an analyst who explained, “SVB is also not your average regional bank… They are a niche bank catering to the venture capitalist crowd and are not a traditional everyday consumer bank”.

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, 2022The 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.


Honestly Not Sure How A Turd Like This Calls Itself A Scholar.....,

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