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People knew when they put their money there it was only FDIC insured up to $250k. The government needs to stop stepping in to bail out companies and the economy, This is a big reason we’re in the mess we’re in now, IMO.
I'm wondering if something is up with tech company finances?.....
There's something rotten in Denmark.
I think we're all aware that Uber has never been profitable. Airbnb had one quarter of profit at the height of the pandemic when people were escaping cities.
A lot of companies in Silicon Valley are absolute dogs, depend on debt to fund operations, and have no way to become profitable.
Well there is maybe one way.
Twitter headcount is down about 90% since Musk took over and the site is still running. No idea how long this can go on or how much you can trim before you're cutting bone, but tech companies like Uber, Airbnb, etc are massively overstaffed.
The tech industry follows a power law distribution of outcomes. Even if you can have some sort of liquidity event (IPO, acquisition) which is very rare and takes about ten years to suss out, the chance of your company achieving lasting success is prob less than 1%. The so-called FAANGs are those companies that accomplished that feat, and they occupy natural monopolies which only emerge every decade or so. So out of thousands of startups that exist, and hundreds that make it to maturity, about one a decade will achieve the position investors crave.
A recession may be happening then but no requirement we go down the financial panic path that so many are seemingly certain will happen. Our economic cycle hasn't had a good ole fashioned recession where things get washed out and a bit of a reset occurs. It feels like everything is just a matter of what the Fed wants and that can be concerning but I'm not convinced a massive seizing up of the system is necessary to get what needs to be flushed out done. Homes and banks are unlikely to be the center of it, something else is going to break and then homes and banks will be impacted by it.
Tech and/or crypto strike me as the likely culprits. I don't think it's a coincidence that the banks that failed are tied to tech startups and crypto.
it’s the massive rate increases by the fed that stressed all these tech companies funding .
borrowed money is the blood of these businesses
The tech companies funding wasn't stressed. SVB bought longer term Treasuries with low face interest rates. As interest rates went up, the market value of those bonds fell. As SVB customers tried to withdraw cash for business purposes, the bank did not have enough liquidity to cover the withdrawals. The bank panicked(in my view), and dumped their long bonds, but that still wasn't enough to cover withdrawals, especially after customers caught wind of the liquidity issues.
SVB didn't hedge their interest rate exposure, which was stupid. SVB bought long bonds in a rising interest rate environment, which was stupid. SVB essentially did not act like a smart bank.
The Feds need to claw back all executive compensation and bonuses paid in the last three months, and go after management's personal wealth as well.
Very interesting point. Very well could be. Bear Sterns if I remember right collapsed in March 2008 exactly 15 years ago this month.
Economy was bad and on down turn, but things did not unravel until Lehman collapse following Fall 2008.
Could the next domino drop Fall 2023. Is it a coincidence it happens exact same month 15 years later. History rhymes and often repeats.
I have thought for a while not much was learned from 2008. Same crappy lending inflated home prices, people taking out HELOCs and using homes as piggy banks instead of as a place to live just lets make a shortage instead. Keep ZIRP for so long and kick can down the road. Now with the FED having raised interest rates to fight inflation for 1 year running, the cracks may be starting to form????
The masses were fooled once again..... (from Wikipedia)
In 2005–2007, Bear Stearns was recognized as the "Most Admired" securities firm in Fortune's "America's Most Admired Companies" survey, and second overall in the securities firm section.[8] The annual survey is a prestigious ranking of employee talent, quality of risk management and business innovation. This was the second time in three years that Bear Stearns had achieved this "top" distinction.
Bear Stearns was insolvent. SVB faced a liquidity crisis. They simply could not give all the depositors the cash they wanted right now.
We didn't know Bear Stearns was broke. We didn't know it about a lot of those financial crisis firms. That's why there was a crisis. Caught us unaware.
Silicon Valley Bank had an 'A' rating from every bank rating agency there is. The issue here is, that there might unknown unknowns going on.
We didn't know Bear Stearns was broke. We didn't know it about a lot of these banks. That's why there was a crisis.
Silicon Valley Bank had an 'A' rating from every bank rating agency there is. The issue here, is that there might me things we don't know that we don't know.
What I have heard is that SVB has significant assets that will allow for the repayment of all deposits. Who knows if that is true.
All we know now for sure is that SVB had insufficient liquidity on Friday.
What I have heard is that SVB has significant assets that will allow for the repayment of all deposits. Who knows if that is true.
All we know now for sure is that SVB had insufficient liquidity on Friday.
This is true.
Lots of depositors wanted their money right now. The bank wasn't completely insolvent. It just couldn't raise the cash to meet the cash withdrawal demands of right now.
The 2008 liquidity crisis was systemic, when all of the large banks -- well ALL banks actually -- were forced to mark-to-market all of their paper losses due to the collapse in value of the collateralized debt obligations backed by all of the bad home mortgages. The rot was widespread and infected the entire system and took years to build up.
Sillicon Valley Bank simply got caught in a short squeeze with illiquidity because their long term bonds had plunged in value with the furious rise in treasury interest rates over the past year.
SVB figured they could park their huge sums of depositers money in safe, long-term bonds at low interest rates. Nobody thought Powell would raise the Fed Funds rate 4% in 9 months.
You can't park huge sums in the stock market. You usually park it in the bond market. SVB got caught holding a huge amount bonds that plunged in face value when Powell jacked up rates. On paper they were already insolvent. That is why there was a bank run. If there was no bank run, all of their long bonds would have just eventually matured for a small profit.
It was only when SVB was forced to dump bonds at a huge loss in order to fund a bank run by depositers, that their paper loss became an acutal loss/insolvency.
It is not systemic at all. No other bank does 90% of their business with venture capital depositers with massive deposits for investment. SVB was in a unique situation.
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