Human beings stampede. We always have. But technology has taken our ancient impulses and put them on warp speed.
"this is very different from “bailing out” Silicon Valley Bank, by the way—it simply means that depositors won’t lose their money". From the point of view of protecting tax payers, or encouraging people to do some due diligence on where they put their money, how do you think these differ? Every finanical manager I have talked to in the last 48 hours agrees that SVB has been bailed out, if not in words then in deed.
Very insightful. Bank runs caused by social media panic. It’d be funny if it wasn’t real.
In our modern age, it’s easy to forget how primitive we really are. We may have AI and nuclear bombs, but psychologically, we’re just getting out of the trees.
They couldn’t pay depositors because Democrats spent too much money bribing weak people with welfare over the last 100 years which is what necessitated the provision of low interest rates for 15 years which resulted in the banks holding a bunch of long-term low-yield securities which were under water because Democrats spent too much money on welfare during the pandemic (which was also caused by Democrats) which caused inflation which caused the Fed to raise rates which is what caused the aforementioned otherwise very safe low-yield securities to lose value and voila.
"I’m grateful that the Treasury and Fed guaranteed deposits on Sunday afternoon (this is very different from “bailing out” Silicon Valley Bank, by the way—it simply means that depositors won’t lose their money). I only wonder what may have happened if this were announced earlier, without the 48-hour panic before the statement. " Then tell me what is the value of an FDIC statement that deposits are guaranteed up to $250K. You are suggesting guarantee should be stated as unlimited. That absolves the institution of any responsibility for managing investment risk. When does the gambling stop? Depositors should understand the bank balance sheet and risks if they want to deposit more than the $250K guaranteed. I think $250K is all they should get from the Fed.
FDIC insured up to $250,000. Unless your depositors include Oprah. The CEO cashed out stock before it crashed. How is this not insider trading? And employees responsible for decision making got their bonuses just before the hammer fell. Amazing timing.
What all this says to me is that banking regulations and the regulators enforcing them are a joke.
This is absolutely a bail out. SVB's collateral (treasuries) were repurchased at par (full value) by government when they were worth $0.60 on the dollar. Who is paying for that $0.40 on the dollar difference? Taxpayers.
Here are some rational solutions that don’t infringe on our rights:
1. Bankers that don’t hedge for interest rate risk should not be bankers
2. Diversify. AKA don’t put all your eggs in one basket, if you do put all your eggs in one basket, watch that basket damn closely
3. Always have enough liquidity
Mimetic desire, very fancy useless words
An argument to restrict speech in order for something passed off as “it’s for the good of everyone”...no thank you.
Is it possible that this piece is trying to blame analysis and journalism for this run on SVB? HUH!!!? They were criminally STUPID in their management of their portfolio in leaving their interest rate risk unhedged and having cash locked up long term and it’s the INTERNET’s fault that there’s a run on the bank? 🤦🏻♀️ Make it make sense.
"There are people who woke up on Thursday or Friday morning with deposits in SVB who withdrew their money in a panic—but the thought of doing that would never have crossed their minds had it not been first suggested to them"
I have read your book and thoroughly enjoyed it. I disagree with this statement in that the animals on the side of the herd that cannot see the lion only know there is a threat. When the animals next to them begin to run, they instinctively know there is a threat even though they cannot directly see it. This is one of the "benefits" of mimetic behavior. If it turns out there is no carnivore and just a meerkat trying to get some sunshine, then the herd recovers and moves back to a "watchful state". Even if I don't like the outcome of this specific crisis, this worked exactly like it was supposed to.
Nope to state control of speech.
Not even for the sake of money.
"SVB was the victim of an old-fashioned bank run. "
Uh—NO. That was the rocks further down on the avalanche. NOT the pebbles that actually started it.
The pebbles that actually started the SVB avalanche were 15 years of near-zero interest rates, a hike in those interest rates by 1,700% in a single year, and a short-sighted risk manager who wasn't smart enough to diversify SVB's investment portfolio between short-term and long-term securities.
I’ve been in markets for 42 years and love the myriad psychological aspects of them, including the ones you detail.
A crucial detail missing here is that SVB conditioned loan to startups on them then depositing their money with SVB. Stunning. Legal? Massive regulatory failure/capture by SF Fed (SVB Exec on SF Fed Board).
Depositors would have gotten 90-95% of their money back. SVB assets pretty transparent and liquid. (Mostly MBS BTW, not long dated treasuries)
Two “solutions”: Outlaw the quid pro quo, if it’s not already illegal. Make anyone who deposits more than $250K sign a statement acknowledging they know they are not insured.
Lot more to this, but I’ll stop here.
Did we really need more evidence that our Democrat friends, who populate these precincts and venues, have the mentality of panicked and dull herd animals?
We saw it on full display during the pandemic. Their subservience, their smug superioriry, their totemic obedience to the creed du jour, their reflexive condemnation of apostasy and fealty to the tenets prescribed by their tribal elders (Cuomo, Whtmer, Murphy, Fauci and most laughably, the senile imbecile they installed in the White House). I am now fully of the view that if a progressive liberal says "good morning," the sun has set and it's time to retire.
The question now is, "are we going to follow these nitwits over the cliff's edge, or retake control of society and stop their madness?"
Funny you should say that. Probably the best summary is from the Kim Iverson show:
Make no mistake about it - there is a plan underway to get complete control of the People. Their pesky and unexpected pushing back on the China Virus Lockdown, the Green New Deal, the "trans" agenda, "Black Lives Matter," the Climate Hoax, the Eat Bugs, Own Nothing and be Happy scam, et al, is inconveniencing the globalists a bit, but the most direct method of control is to control the money. - and That's The Plan: chaos, until complete seizure of the system and central control becomes possible. The 2008 meltdown was just the beginning.
This article is a lot of psychology, but it's important to realize that SVP really was insolvent. If it was just a Twitter mob demanding its money, the Fed could backstop SVP from the overnight funding window or even with a direct loan. They did not do that for a reason: SVP has massively screwed up, taking demand deposits and putting them into long-term T-bills, which had tanked in value since the Fed had raised interest rates. The bank run wasn't caused by Twitter. The bank run was caused by legitimate concerns over the bank's balance sheet.
Perhaps related, SVP's Risk Management Officer was apparently obsessed with viewing banking through a woke lens. It appears Jay Ersapah was more concerned with gay pride than with bank risk, which is unfortunate since her job was managing bank risk. This is literally a case of "go woke, go broke". Or more accurately, you go woke, and everyone else goes broke. Since Jay Ersapah is a member of a sacred victim group (a self-identified queer person of color), there will be no consequences for her.