Why Poverty Persists In America

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.

Corn-Fed Redhead Bussin Dollar Tree Dinners...,

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.

 

Farming The Poor: The Homeless Industrial Complex

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.

 

 

Not Big Lots!! EBT/SNAP Cuts Fitna Hurt One Of My Favorite Stores...,

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. 

This month, 32 states ended the federal increase to food stamps, known as SNAP benefits, that began during the early weeks of the pandemic. At the same time, certain beefed-up tax credits are no longer available, which means many taxpayers are preparing for smaller tax refunds this year. 

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." 

 

The MINUTE Netanyahu Opened His Mouth For SVB Bank, The Jig Was Up!!!

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.

Greater Liquidity Produces Instability

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.

What Did These Three Banks Have In Common? Uninsured High-Liquidity...,

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.

Silicon Valley Bank Was Uniquely Vulnerable To Intentional Asymetric Attack...,

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.

Anosognosia: The Biggest Risk Is Not Knowing What You're Doing

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.

Janet Yellen: Treasury Secretary Struggles....,

 

Israeli Banks Pumped Billions Out Of SVB Before Last Friday

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.

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.