{"id":618821,"date":"2023-03-17T09:49:20","date_gmt":"2023-03-17T14:49:20","guid":{"rendered":"https:\/\/news.sellorbuyhomefast.com\/index.php\/2023\/03\/17\/silicon-valley-bank-went-broke-but-not-because-it-was-woke\/"},"modified":"2023-03-17T09:49:20","modified_gmt":"2023-03-17T14:49:20","slug":"silicon-valley-bank-went-broke-but-not-because-it-was-woke","status":"publish","type":"post","link":"https:\/\/newsycanuse.com\/index.php\/2023\/03\/17\/silicon-valley-bank-went-broke-but-not-because-it-was-woke\/","title":{"rendered":"Silicon Valley Bank went broke, but not because it was woke"},"content":{"rendered":"
\n

The culture war has come for the banks, and friends, it is stupid.\u00a0<\/p>\n

There are a wide variety of proposed explanations for the fall of Silicon Valley Bank. For instance, The Wall Street Journal<\/em>\u2019s editorial<\/a> page has suggested SVB\u2019s board \u201cmay have been distracted by diversity demands\u201d as I guess it had too many women, too many Black people (one), too many queer people (again, one), and too many veterans (???).<\/p>\n

Meanwhile, in The Financial Times<\/em>,<\/a> the problem is that Silicon Valley Bank let people work from home. \u201cIt is harder to have a challenging call over Zoom. It makes it harder to challenge management,\u201d according to Nicholas Bloom, a professor at Stanford University who the FT <\/em>chose to quote for some reason. \u201cIdeas like hedging interest rate risk often come up over lunch or in small meetings.\u201d Further, the problem was that SVB didn\u2019t have the \u201cabrasive, roll-up-your-sleeves culture of Wall Street,\u201d an anonymous source complained to the FT<\/em>.<\/p>\n

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As we all learned during the bank run on Silicon Valley Bank, a community of individualists is no kind of community at all<\/p>\n<\/div>\n

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We\u2019re going to find out what happened. There are at least three investigations ongoing into Silicon Valley Bank: one by the Fed into its own actions, one by the SEC, and one by the DOJ. Certainly operating without a risk officer seems bad<\/a>. Not a great look, either, for senior leadership to be selling shares when the bank isn\u2019t doing so hot<\/a>. Of course, there is an obvious, non-partisan explanation for this: greed.<\/p>\n<\/div>\n

Still, I feel confident that what happened at SVB had little to do with diversity efforts or work-from-home policies, and a lot more to do with deposit growth and its VC clientele<\/a>. The bank also failed to predict the future correctly when interest rates eventually went up.<\/p>\n

And predicting the future is the point of banking and of venture capital. Get it right, and you make money. Get it wrong, and the results can be catastrophic not just for you but for your entire community. Sure, SVB failed and depositors were rescued by the Federal Deposit Insurance Corporation \u2014\u00a0call it a \u201cbailout\u201d if you want, who cares \u2014\u00a0but it will be years before we see the full ramifications of that collapse.<\/p>\n

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Silicon Valley\u2019s venture capital community loves to style itself\u00a0as a bunch of rugged individualists. As we all learned during the run on Silicon Valley Bank, a community of individualists is no kind of community at all<\/a>.<\/p>\n<\/div>\n

Silicon Valley Bank was a community bank<\/a>, and its relationships were one of the most notable things about it<\/a>. It understood how to work with businesses that were not yet making money. To reward itself for that risk, it did two things: first, it sometimes required those businesses to bank with it exclusively. Second, it got rights to buy shares of those companies in the future, often at bargain-basement prices. That second function echoed the VC industry it served: it bet that some of those money-losing startups would make it very, very big \u2014 thus covering any losses from the companies that failed.<\/p>\n

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Thiel, of course, has publicly put ESG investing on his enemies list<\/p>\n<\/div>\n

The VC-like part of Silicon Valley Bank isn\u2019t what went wrong. The bank part of the bank is where the failure occurred: a lot of deposits came in during the pandemic, and SVB chose to put half of them in a $91 billion investment portfolio that was vulnerable to interest rates rising. But because startup culture is also<\/em> vulnerable to interest rates rising<\/a>, that left SVB more exposed than other kinds of banks. As the startups started to draw down their cash rather than put more in, SVB had to get rid of its investments at a loss.<\/p>\n

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These right-wing talking points are unserious, so it\u2019s worth asking why we\u2019re hearing them at all. One possible answer is the involvement of Peter Thiel\u2019s Founders Fund in the bank run<\/a>. Thiel is one of the biggest donors to the Republican Party<\/a>.\u00a0<\/p>\n<\/div>\n

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A mysterious anonymous someone <\/em>told Axios<\/em><\/a> that Thiel wasn\u2019t directly involved with the decision to tell portfolio companies to pull their money. Of course, after Thiel gave a big talk about how amazing Bitcoin was while Founders Fund was busily selling it<\/a>, people might be a little skeptical about that. That might be why we\u2019re hearing about \u201cwoke Wall Street.\u201d<\/p>\n<\/div>\n

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I have ignored the roiling battle over ESG investing<\/a>, mostly because it is boring, but I guess we now have to deal with it. Thiel, of course, has publicly put ESG investing on his enemies list<\/a>.\u00a0<\/p>\n<\/div>\n

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Most investors are not actually sociopaths<\/p>\n<\/div>\n

Markets are made up of people. ESG investing \u2014\u00a0it stands for \u201cenvironmental, social, and governance\u201d \u2014 is a capitalist product, borne of the demand that firms do more than be profitable. It exists because investors<\/em> want some basic level of eco-friendliness, pro-social actions, and good governance.<\/p>\n

ESG isn\u2019t really a new concept. While there are some investors that just want to make money, there are others who care about how that affects the people around them. The prime example is tobacco companies, which sell an addictive product that can and does kill people. In Barbarians at the Gate<\/em>, Warren Buffett extolled the virtues of investing in cigarette companies: \u201cIt costs a penny to make. Sell it for a dollar. It\u2019s addictive. And there\u2019s fantastic brand loyalty.\u201d If you don\u2019t care about cancer deaths, this is a pretty good formula for investing.<\/p>\n

Except a lot of people do <\/em>care about these things. Most investors are not actually sociopaths; some of the biggest investors are handling pension and retirement funds for ordinary people. ESG investing is primarily institutional investors \u2014 BlackRock especially \u2014\u00a0trying to market a product that lets people make money without feeling too guilty. Clients are asking for this, actually<\/a>! That is called market demand!<\/p>\n

But ESG is about saying<\/em> the right things, not necessarily doing <\/em>them<\/a>. So why are we seeing conservatives taking it seriously? Well, Republicans can\u2019t admit there isn\u2019t much market demand for their beliefs. They\u2019re supposed to be pro-capitalism, after all.\u00a0<\/p>\n

Money is the abstract version of our social ties. It is, very literally, what we owe each other. Silicon Valley Bank served a community<\/a>, one where \u201cevery man for himself\u201d is the going philosophy. That\u2019s part of what leads to a bank run \u2014\u00a0because if the VC culture in Silicon Valley had been more interested in preserving its own community, it would not have tanked its own bank.<\/p>\n

Then there\u2019s the deregulation. In 2018, then-President Donald Trump signed into a law exempting smaller banks from some of the requirements of the 2010 Dodd-Frank bill<\/a>, a post-financial-crisis attempt to reform banking. The new law meant that smaller banks, such as Silicon Valley Bank, weren\u2019t subject to the same oversight requirements as \u201csystemically important\u201d banks, with more than $250 billion in assets. SVB itself lobbied for this<\/a>!<\/p>\n

I don\u2019t necessarily buy that the market is the be-all and end-all of society. People often want things that are bad for them \u2014\u00a0cigarettes, for instance. But if you have been following the libertarians attempting to virtue-signal about the Almighty Market, there is one other funny little wrinkle here. A lot of money has flowed into big banks, which are perceived as being safer than little banks like SVB. Those \u201csafer\u201d banks are also much more heavily regulated. It\u2019s almost like the market is asking to be less free. You can see how that might put Republicans in a bind.<\/p>\n<\/div>\n

Read More<\/a>
\n Elizabeth Lopatto<\/p>\n","protected":false},"excerpt":{"rendered":"

The culture war has come for the banks, and friends, it is stupid.\u00a0There are a wide variety of proposed explanations for the fall of Silicon Valley Bank. For instance, The Wall Street Journal\u2019s editorial page has suggested SVB\u2019s board \u201cmay have been distracted by diversity demands\u201d as I guess it had too many women, too<\/p>\n","protected":false},"author":1,"featured_media":618822,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[393,46,394],"tags":[],"class_list":["post-618821","post","type-post","status-publish","format-standard","has-post-thumbnail","category-silicon","category-technology","category-valley"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/posts\/618821","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/comments?post=618821"}],"version-history":[{"count":0,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/posts\/618821\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/media\/618822"}],"wp:attachment":[{"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/media?parent=618821"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/categories?post=618821"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/tags?post=618821"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}