Curious if anyone is watching the collapse of SVB? Thoughts, Implications? Im seeing the full range, from this is only a local problem, to this will have widespread repercussions in the whole industry, to the same argument but on the industries they support, and people advocating for letting it fail and people advocating for a govt bailout (if the cant find a private sector solution).
Curious what the hive was thinking, especially the members closer to it geographically
Interesting. I live under a rock, so I was unaware of it. Thanks for bringing it up.
I would think the rising interest rates would be a matter of great concern for banks in general.
https://www.reuters.com/business/finance/what-caused-silicon-valley-banks-failure-2023-03-10/
We needed George Bailey out there talking to everyone about not making the withdrawals.
I made the mistake of bumping an old thread to discuss it. This is definitely the better option to keep it more focused.
I hope, above all else, we extend zero bailouts this time. I really think that was the biggest mistake of the great financial crisis, and lead directly to where we are now. If you are leveraged double or triple whats allowed, or spending like a drunken sailor in a zero rate interest environment, you deserve to go out of business when you can't make ends meet. Thats how the free market is supposed to work! The government writing your failed business a blank check and slapping your wrist with a stern don't do it again (unless you want to) approach needs to have died with the last recession. If the banks hold the rest of country hostage for bailouts, then the government/fdic/cfpb/etc needs to wipe out shareholders (incl. executives/company leadership) and assume control. You want government help? Fine, but the pricetag is gonna hurt.
Too soon to tell what the case will be here. FDIC is doing its job so far.
Sorry, but I was taught to use a term and then use an acronym referring to the thing.
Clearly these guys are smarter than me, but SVB?
Small Vlok Buick?
In reply to 914Driver :
Silicon Valley Bank (SVB). They collapsed this week in less than 48 hours. They specialized in lending to tech startups.
I think it will have strong repercussions, and Monday will be interesting. I'm sure many people just think "the rich companies" deserve it for some reason though.
In reply to Flynlow (FS) :
I also dont think there should be bail outs, but I dont think its the same situation, I think there is less negligence in this case. Much of the collapse is being pinned on a run on the bank stemmed by a large loss in the bond market and the depression of their business based on the Fed raising rates.
This MAY have been a viable and safe business if it wasnt for the massive amounts of quantitative easing followed by large rate increases.
Im not one to defend large banks, just saying it may not have been completely their fault.
That said I dont think a bailout should happen, but Im sure if we dont have a private sector solution by Monday, the media will be trying to convince us its a good idea.
In reply to Steve_Jones :
I know there arent many Crypto lovers here, but USDC (a stable coin) has a bunch of money in SVB, so there will be some repercussions in crypto, most cryptos largely follow teh crypto market as a hole.
There is reports of etsy sellers not receiving their payments.
Last I saw was SVB has like 210-220B in assest and about 190B is not insured. The normal person will likely not be directly affected by SVB, but the indirect effects to thinks like their employers (cant make payroll?) and the local economy will probably be quite large.
Opti said:In reply to Flynlow (FS) :
I also dont think there should be bail outs, but I dont think its the same situation, I think there is less negligence in this case. Much of the collapse is being pinned on a run on the bank stemmed by a large loss in the bond market and the depression of their business based on the Fed raising rates.
This MAY have been a viable and safe business if it wasnt for the massive amounts of quantitative easing followed by large rate increases.
Im not one to defend large banks, just saying it may not have been completely their fault.
That said I dont think a bailout should happen, but Im sure if we dont have a private sector solution by Monday, the media will be trying to convince us its a good idea.
This is the narrative I am hearing as well, I just have a tough time believing that they did everything right and still failed. That doesn't often (ever?) happen in banking. My guess is:
1. There was greater risk than has currently been disclosed, and that they made some bad bets sometime in the last year that came to light and started the dominos, and they are using the, "see? safe bonds and this STILL happened!" to try and get control of the narrative.
2. Its as you said, and the combo of hard on the gas (QE) then hard on the brakes (rate hikes) tripped them, and possibly others, up. Which speaks to wider financial ineptitude on the part of the FED and is utterly terrifying.
I don't like seeing the market's narrative that rates are too high. They are still historically LOW, we've just become addicted to ridiculously low rates. If you can't survive in a 3-5% environment, you're probably not a profitable business.
I'm definitely watching this, partially because of morbid curiosity (I was working in investment banking when Lehman happened) and partially because I'm in IT and have a bunch of acquaintances who work in Silly Valley.
Notwithstanding the "well, they should've managed their long term risk better" (probably - not sure how well you can manage the Fed suddenly hitting the brakes fix what a bunch of people believe is the wrong problem because the workers are getting uppity) narrative, there's a little really ugly detail that's likely going to have unpleasant side effects. A lot of VC companies require that the companies they invest in keep their funds in SVB, which historically has had a very cosy relationship with the established VC companies. Combine that with a lot of IT companies that potentially bank with SVB having to make payroll on the 15th and the FDIC insurance scheme only covering the first $250k, you have all the makings of a proper E36 M3storm coming.
Some tweets suggest that at least one company that acts as an intermediary marketplace may have (temporarily, hopefully) suspended payouts to sellers active on their platform, potentially due to this issue. This is a problem that's going to affect a whole bunch more people than some stereotypical tech bros and isn't going to be a regional issue.
Oh, and it has the potential to _also_ be a regional issue because guess what, a lot for founders of VC backed companies also bank with SVB as individuals, have their mortgages there and all that fun stuff.
Is there a list of companies that have holdings (100m+) with SVB?
Just curious about what news might be shared Monday morning when I get to work.
Flynlow (FS) said:Opti said:In reply to Flynlow (FS) :
I also dont think there should be bail outs, but I dont think its the same situation, I think there is less negligence in this case. Much of the collapse is being pinned on a run on the bank stemmed by a large loss in the bond market and the depression of their business based on the Fed raising rates.
This MAY have been a viable and safe business if it wasnt for the massive amounts of quantitative easing followed by large rate increases.
Im not one to defend large banks, just saying it may not have been completely their fault.
That said I dont think a bailout should happen, but Im sure if we dont have a private sector solution by Monday, the media will be trying to convince us its a good idea.
This is the narrative I am hearing as well, I just have a tough time believing that they did everything right and still failed. That doesn't often (ever?) happen in banking. My guess is:
1. There was greater risk than has currently been disclosed, and that they made some bad bets sometime in the last year that came to light and started the dominos, and they are using the, "see? safe bonds and this STILL happened!" to try and get control of the narrative.
2. Its as you said, and the combo of hard on the gas (QE) then hard on the brakes (rate hikes) tripped them, and possibly others, up. Which speaks to wider financial ineptitude on the part of the FED and is utterly terrifying.
I don't like seeing the market's narrative that rates are too high. They are still historically LOW, we've just become addicted to ridiculously low rates. If you can't survive in a 3-5% environment, you're probably not a profitable business.
I agree with you. Im not saying it was a good business, just that we dont know yet, but the narrative is saying it was. Im generally skeptical of whatever the standard narrative is. So im just waiting to see if we ever find out what the actual catalyst was.
I do think the Fed is largely pretty inept. Analysts have been saying dropping rates to prop up the economy was going to create a problem and we'd have to pay the piper eventually, but they did it anyway. Now they are stuck between a rock and a hard place. They keep raising rates and cant get ahold of inflation but in the process doing a lot of damage to people and the economy but if they turn it around they will just put us back in the same situation. One may have a better long term result, but they both have bad short term results.
Assuming the current narrative is correct I do feel some sympathy for SVB who would assume large sustained movement in interest rates where unlikely and operated as such, while having to maximize shareholder value. Its easy to monday morning quarterback this thing and say they should have done this or that, but we are in relatively unprecedented times, not the actual rates but the volatility of them over such a short period. Even if this is true I still dont think we should bail them out.
Im sure some will use the narrative to justify a bail out, but really we should be looking at the Fed and asking if this is how we want to run our economy.
Now if they did a bunch of dumb E36 M3 and we just havent found out, berkeley em.
You are correct rates arent too high, rates just moved too much too quickly (in both directions), most analysts I follow think we should be between 6-8%. Problem is our whole economy and most of the money is currently based on the super low rates from the last few years, which is part of the reason we havent seen massive drops in asset prices (real estate, cars, stocks, etc) even though money has become much more expensive. There will have to be a lot of suffering to find an equilibrium with higher rates.
In reply to No Time :
Google your company and SVB lots of reporting but havent seen a comprehensive list.
Heard Roku was like half a billion.
In reply to 1988RedT2 :
Im going to buy some of this ETF. I follow a guy that essentially did this on his own and just always bet against him, Had quite a few decent wins.
As mentioned in the other thread, I'm trying to decide if this is a Bear Stearns moment, and the wheels will fall off in the next 6-12 months, or if this is a momentary blip, or something in between.
Some midsized banks are getting beat down in the stock market over this, and they likely aren't as exposed as SVB was. One that I looked at has a P/E ratio of less than 4 and dividend of over 8% as of their closing price on Friday. Might try to buy some shares on Monday and hope the the markets calm down a bit afterwards.
I did a little comparison between Chase and SVB on their yearly report, and frankly, to my unskilled view, it looks like SVB wasn't really in too much worse shape than Chase, so it is very possible it was a liquidity crisis that turned into a solvency crisis. But their attempt to issue additional stock, and raise some other capital this week makes it sound like they knew problems were on the way before the bank run started.
From what I have read, the fact that SVB's primary customers were startups resulted in them being unexpectedly vulnerable to a quick rise in interest rates.
1) Most small banks are set up to take in deposits from customers and use those deposits to loan money to that same set of customers. SVB's customers are startups, who get checks from VCs, deposit them in a bank account, use that bank account to pay the bills, but don't generally borrow money (at least not from the bank). This means that SVB had only half of the usual business model, they've got the deposits but not the loans.
2) They needed to put this money to work somewhere safe so a lot of it was put into US Treasury bonds (generally thought of as one of the safest investments you can make).
3) The Fed raised interest rates by something like 5% in a couple years. Since treasury bonds are fixed-rate, the absolute value of an already-issued bond goes down when the interest rates go up. This meant that a lot of their underlying assets were now worth less than they had paid for them.
4) Simultaneously, the slowing economy meant there was less VC interest in startup investments. Existing startups continued to withdraw money to pay their ongoing bills, but they were not depositing new investment money.
5) In addition to providing funding to the startups, those same VCs provide a lot of business advice. When they sensed that SVB was getting weak, they started suggesting to their client companies to move their money to a different bank. There are a relatively small number of VCs who are providing the same advice to all of their clients, and that pushed them over the edge.
So SVB saw a dropoff in new deposits and a big increase in withdrawals at the same time as a drop in their underlying asset value. That combination is deadly to a bank.
As for risk, the suggestion I've seen is that SVB's business model was making a massive bet on interest rates staying the same (or at least going up more slowly). That's obvious in retrospect, but it wasn't necessarily obvious beforehand. My impression is that the rate at which interest rates have gone up is unprecedented.
Since 2010 or so, with money having no value, the economy has essentially been run as a bar where all the clientele are alcoholics and the drinks are free. You spend 12 years in this bar and you have no reason to think the party will ever end.
It just did. Pay up.
Correct me if I am wrong, but if your interest rates are not higher than your inflation rate, your currency is worthless; like using a strainer to carry water.
codrus (Forum Supporter) said:As for risk, the suggestion I've seen is that SVB's business model was making a massive bet on interest rates staying the same (or at least going up more slowly). That's obvious in retrospect, but it wasn't necessarily obvious beforehand. My impression is that the rate at which interest rates have gone up is unprecedented.
I wouldn't say unprecedented:
Plenty of spots where the trend line was steeper, including at least one post-2000. The unprecedented part to me is nowhere else on the graph did the rate stay at zero more than a year or two. It also was rarely below CPI. That's the anomaly, and also explains alot of the "everything bubble" we're in. If I was a fresh minty MBA, that's where I be drawing a big red X and saying, "Hey, we should work up some fall back plans for when this changes."
EDIT: Apologies, my google-fu failed me. The trend line there is the LAST time they tried to raise the rate, just before COVID. Here's the latest, and you're right, it is steep. But I'm still not buying it as the sole cause:
I think "worthless" is an incorrect term and indicative of some bias on your part. Worthless is when you go to the store and they tell you that they no longer take US dollars.
Flynlow (FS) said:EDIT: Apologies, my google-fu failed me. The trend line there is the LAST time they tried to raise the rate, just before COVID. Here's the latest, and you're right, it is steep. But I'm still not buying it as the sole cause:
Sole cause, no. OTOH, this is an unusual situation and one which was not predicted by many people. It's easy to point out after the fact, it's not easy to look at the business model ahead of time and identify this possible chain of events.
As I understand it, this isn't a hare-brained, "get rich quick of the month" scheme either, it has been SVB's standard mode of operation for 40 years. I'm not saying it absolves them of blame, but it is understandable what happened. Had the slope been less aggressive, likely they would have been able to deal with selling those T-bills in time to keep the reserves solvent. The bank would have had a couple of bad quarters, lost money, lost share price, but would have stayed in business.
The other thing to take away from it is that the situation at SVB is relatively unique, there aren't many other banks with that kind of mix. Hopefully that means the fallout will be limited, rather than indicating the beginning of a general meltdown.
Podcast (and written transcript) with a bunch of info about SVB: https://creativeplanning.com/insights/silicon-valley-bank/
In reply to 1988RedT2 :
I watched Kramer for a while and then watched his recommended stock picks consistently underperform if not crash.
In reply to Flynlow (FS) :
I think your chart might still be out of date. Its still rising, i think its about double that now at around 4.5%. Im not saying its completely unprecedented but its a completely different world from the last time we saw something like this, specialization and niches in the market has made it a massive house of cards. Example: A bank will go under because it has a specific exposure (start ups, etc) but it can cause a shift in public perception (by public I mean investors and consumers), which actually is more important than a companies financials in todays world, which can lead to a stock collapse or a run on a bank that doesnt actually have the same exposure but the publics reaction can create and exploit a liability. The current narrative is something like this happened as potentially the first domino in the SVB case, they may not have been in that bad of shape, but needed to raise some capital so they decided to sell stock, when they announced this the stock price started to fall which created a run on the bank.
Its also not just how fast its going up, its also how fast it went down, and stayed down long enough to change everything just to have a rug pull.
PS I believe at this point the Fed trying to manipulate the economy is probably worse than just living with the natural cycles.. I think they do more damage than help.
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