The Fear Mongers, Charlatans and Meanies in the Silicon Valley Bank Collapse
OBSERVATIONS FROM THE FINTECH SNARK TANK
If you’re here for an explanation of the collapse of Silicon Valley Bank (SVB), you’re in the wrong place because this article isn’t going to explain what happened. Instead, it will reveal bad takes– the lies, misconceptions, insults and calls for panic – that emerged from this debacle.
My intention is not to call out specific people (oh, but I will), but to make a statement about society.
Frank Rotman, Chief Investment Officer at QED Investors (and not a charlatan), tweeted: “When things go wrong at a bank, it seems like every Tom, Dick and Harry on social media suddenly knows how to reinvent banking at new.”
Sometimes they’re on the Wall Street Journal.
Of all the bad pictures coming out of the SVB collapse, perhaps the worst comes from WSJ columnist Andy Kessler who wrote:
“In their proxy statement, SVB notes that in addition to 91% of their board being independent and 45% women, they also have “1 black,” “1 LGBTQ+,” and “2 veterans.” I’m not saying 12 white men would have avoided this mess, but the company may have been distracted by diversity requirements.”
Distracted by diversity requirements? Nonsense. This statement was nothing more than a cheap shot at DEI – and it was incredibly offensive. You may not like who the bank donated to or lent money to, but here there is no connection between the bank’s DEI efforts and its deposit management policies.
Who gets the bailout?
Speaking of the WSJ, someone was asleep at the wheel when they edited an article by presidential candidate Vivek Ramaswamy titled SVB does not deserve a taxpayer bailout.
Right off the bat, this is wrong, since SVB didn’t get any bailout, and that wasn’t the plan either. The bailout is for SVB depositors, many of whom are start-up technology companies. However, Ramaswamy does not think they deserve a bailout:
“Venture capitalists claim that if SVB fails, startup founders who banked with SVB should be spared the fallout, but this is also wrong. Startup managers must do better in managing financial risk and diversifying across counterparties. Many technology entrepreneurs were also financially rewarded for banking with SVB: The bank uniquely specialized in providing non-dilutive venture debt to risky early-stage companies. This allowed startup founders to retain greater ownership in their companies. Taxpayers were never going to share in that equity upside, so they shouldn’t be asked to foot the bill when the downside risk presents itself.”
Two problems here:
- Imagine that the failing bank was a community bank that served mom and pop businesses on Main Street USA. Will Ramaswamy argue that Mom and Pop “needs to do better at managing financial risk and diversifying across counterparties”? Questionable. So why should “startup founders” be held to other criteria?
- The logic at the end of the statement is nonsense. Taxpayers foot the bill for many things that they do not get to benefit from or participate in. Bringing up this example is a weak argument.
Another misinterpretation of who gets the bailout came from Rep. Thomas Massie, the U.S. representative for Kentucky’s 4th congressional district in this tweet:
True, SVB had deposits from some “very rich” people, but the bank’s customer base included technology start-ups that employ many people who would not be considered “very rich”. Protecting these depositors – i.e. the tech startups – enables them to pay salaries and pay their bills.
When confronted about this oversight, Massie responded: “We are told that the SVB uninsured accounts of concern are largely those of startups that have received venture capital money. These venture capital funds have institutional investors as well as individual investors who, by law, must be wealthy for to qualify to invest.”
Huh? Being financed by venture capital funds has nothing to do with protecting SVB’s depositors.
To most normal, rational people, being called a “fearmonger” is not a compliment. But Jason Calacanis, an angel investor and co-host of a popular podcast called the All-In Podcast, seems to relish the role he played in spreading the panic and mania that gripped the tech industry after the announcement of SVB’s collapse.
In a series of tweets, Calacanis – whose keyboard was apparently stuck on CAPS LOCK all weekend – warned his followers that the situation was at “DEFCON1” and that they should bail against SVB if a white knight was not found. His tweet about Americans lining up at banks to claim their money was viewed 6 million times.
In a since-deleted tweet, Calacanis asked “who else is going to buy some guns, provisions and gas tomorrow?”
After the government stepped in and announced it would freeze uninsured as well as the FDIC-insured deposits, Calacanis announced that his “work here is done.”
Surely, other fearmongers played a role here:
- Mark Tluszcz, CEO of Mangrove Capital, tweeted: “If you’re not advising your companies to cash out, you’re not doing your job as a board member or as a shareholder.”
- Michael Burry, the hedge fund manager who famously bet on the subprime mortgage meltdown that triggered the 2008 financial crisis, compared Silicon Valley Bank to Enron in another since-deleted tweet, “It is possible today that we found our Enron.”
- Investor Bill Ackman — who had no problem with Caps Lock but apparently couldn’t find the return key on his keyboard — warned that if federal regulators didn’t quickly step in and guarantee all deposits, there would be a run on other banks.
[I know you didn’t read that whole tweet—that’s OK. Keep reading…]
The downright mean people
The Silicon Valley Bank crisis really brought out the worst in some people. A former CFPB chief tweeted:
“If you were one of the founders trying to be the next billionaire/Elon Musk type with $$millions of VC money and you lost your business and your investors’ money in uninsured deposits with SVB, you didn’t deserve the opportunity in the first place. Stop to sew.”
In another tweet in response to the female founder of a fintech that recently shut down (unrelated to SVB), this same ex-CFPB chief tweeted:
“If you’re another upper-middle-class white kid taking $10 million from VCs so you can become another billionaire, grow up and figure out how not to lose your investors’ money in a bank run.”
The CEO of a start-up tech company who says in his Twitter bio that his entire adult life “has been a study in risk — as a naval officer, as a currency market maker, as a risk manager, as a fundamental investor, and as an entrepreneur,” tweeted:
“Every startup that parked its money at SVB deserves to fail.”
By the way, this is from a guy whose stuck tweet reads: “”If we can forgive what’s been done to us… If we can forgive what we’ve done to others… If we can leave our stories behind. We are victims and villains. Only then can we perhaps save the world.”
Crises put the spotlight on society
Some crises – like 9/11 – bring out much of the good in many people. The Silicon Valley Bank crisis has done the opposite.
The number of poor assessments of the situation – on social media as well as via mainstream media outlets – are too numerous to mention, and come from sources that do not deserve to be singled out.
However, it did not take long before the narrative about the crisis went from blaming the SVB management for mismanagement of assets and liabilities to blaming Trump and “vigilance”.
We might not even have heard much of the wake-up call if Elon Musk hadn’t acquired Twitter. It is interesting to consider how much of the SVB conversation on Twitter would have been labeled as “disinformation” or censored altogether.
Congressman Patrick McHenry, chairman of the US House Financial Services Committee, referred to the turmoil as “the first Twitter-driven bank run.”
However, it was predictable.
In 2007, Andrew Keen published Cult of Amateur — How Today’s Internet is Killing Our Culture, promoting the idea that mainstream media, copyright and public trust would be compromised by the abundance of content on blogs, YouTube and other venues. He described the situation as “ignorance meets selfishness meets bad taste meets mob rule”.
In a later book, Digital Vertigo, Keen argued that the abundance of online sharing divides, diminishes and disorients humanity. He lamented that a kind of “digital narcissism” was becoming a prominent feature of our culture.
The Silicon Valley Bank debacle makes Keen look like a genius.
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