MY THOUGHTS ON SILICON VALLEY BANK COLLAPSE

MY THOUGHTS ON SILICON VALLEY BANK COLLAPSE

Jason MalabuteBusiness Member
Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 906 votes

The following are my thoughts on the collapse of Silicon Valley Bank and any thoughts of upcoming bailouts. As an advocate for responsible financial practices, I believe that the government should not bail out banks that collapse due to their own risky investments. Such bailouts not only create moral hazard but also set a dangerous precedent that banks can engage in reckless behavior with little or no consequences.

Depositors should not be bailed out for savings over the $250,000 FDIC limit because they should share the risk of banking with a particular institution. When depositors place all their cash in one bank, they are essentially placing all their eggs in one basket, which can be risky. Therefore, it is important for depositors to diversify their savings across multiple institutions to mitigate risk. Additionally, depositors should consider investing their money in assets like real estate, which can provide long-term returns and mitigate the risks that come with being too liquid. Ultimately, depositors should take responsibility for their financial decisions and not rely on the government to bail them out in the event of a bank failure.

When the government bails out a bank, it sends a message that the bank's risky investments were acceptable and that taxpayers should bear the cost of the bank's mistakes. This creates a moral hazard, where banks are encouraged to engage in risky behavior with the knowledge that the government will bail them out if things go wrong. This, in turn, puts taxpayers at risk and undermines the integrity of the financial system.

Moreover, when the government bails out a bank, it effectively rewards poor financial management and risk-taking. This sends the message that there are no consequences for engaging in such behavior, which can ultimately lead to a culture of complacency and a lack of accountability in the banking sector.

In addition to the moral hazard, bailing out banks can also be costly for taxpayers. The funds used to bail out a failing bank are typically drawn from the public coffers, meaning that taxpayers foot the bill.

As a real estate investor, I am aware that financial distress in the market can create great buying opportunities. An economic downturn can create great buying opportunities in commercial real estate for savvy investors. When the market is down, sellers are more flexible on price and terms, and may be more willing to negotiate seller financing or other creative financing options. Additionally, there is likely to be less competition from other buyers as money may be less accessible. This can be particularly beneficial for real estate investors who have preexisting relationships with investors who have cash, creativity, and resourcefulness, allowing them to take advantage of market opportunities that others may miss. Ultimately, an economic downturn can be a great time for investors to acquire high-quality assets at a discount and position themselves for long-term success in the real estate market. With that said, as a real estate investor I would be extra careful with what banking institution I do business with and put my reserve money in moving forward.

In conclusion, I strongly believe that banks and depositors should not be bailed out over the FDIC amount. Bailing out banks creates moral hazard, sets a dangerous precedent, and can be costly for taxpayers. As a society, we should encourage responsible financial practices and hold banks accountable for their actions, rather than rewarding them for their mistakes.

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Realtor · Longmont, CO · Member since 2021 · 577 posts · 631 votes
3y

If this was a crisis that happened because of risky investments I would agree. That being said, this is a crisis that was created because the bank chose the safest asset on earth (US treasury bonds) to put their depositors money into and the Fed kept rates low too long and then raised rates too fast, and focused on lagging indicators all the while knowing they risked collapsing the banking system. If the Fed does not step in, it is likely that there will be a rush on the banks, and these banks will not be able to liquidate assets fast enough to handle the pressure and collapse. As RE investors we like buying opportunities, but we should not like government created banking system failures. 

See this reply in the discussion

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  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    3y
    Quote from @Carlos Ptriawan:
    Quote from @V.G Jason:
    Quote from @Carlos Ptriawan:
    Quote from @Jay Hinrichs:
    Quote from @Mike Dymski:

    Commercial depositors spreading their large deposit accounts across hundreds or thousands of banks is a nonstarter.


    Agreed  thinking that business's should only keep 250k in each bank is ridiculous statement on so many levels.  What about companies that have payrolls of millions a  month they going to have 25 separate banks to deal with ??  And Should syndicators and other investors that are pooling money for a deal and say are raising 5 million in cash they should go out and get 20 separate accounts..  Growing up in Cupertino ( Silicon Valley) Always thought SVB to be a good institution catering to high tech.  Maybe they needed more real estate loans tied to prime on their books.. 


     so SVB business model is bit different, they have special loan program for the tech/startup founder but the rule is that they have to invest in SVB.

    This problem actually happened because Peter Thiel is saying to everyone in VC world that they should withdraw their fund from SVB.

    Btw last time I checked all the big VC has large $$$ in SVB, I guess we will see catastropic changes in bay area in next few month. If bank and Gov cant be trusted what can we do :) lol

    All depositors are going to be kept whole. This is an unintended consequence of rapid rise in rates. They'll be taken care of. 

     The thing is most of the "deposit" in SVB is "corporation" account, for example payroll account.

    Guy in roblox and roku can't be paid because thei bank is gone after stupid goverment action :-) even the SVB CEO is not at fault here....

    Exactly why they will be kept whole. This wasn't rampant or foolish speculation. And having Roblox & Roku spread their funds across 100 banks is asinine. Corporate accounts will be taken care of.
  • Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @V.G Jason:
    Quote from @Carlos Ptriawan:
    Quote from @V.G Jason:
    Quote from @Carlos Ptriawan:
    Quote from @Jay Hinrichs:
    Quote from @Mike Dymski:

    Commercial depositors spreading their large deposit accounts across hundreds or thousands of banks is a nonstarter.


    Agreed  thinking that business's should only keep 250k in each bank is ridiculous statement on so many levels.  What about companies that have payrolls of millions a  month they going to have 25 separate banks to deal with ??  And Should syndicators and other investors that are pooling money for a deal and say are raising 5 million in cash they should go out and get 20 separate accounts..  Growing up in Cupertino ( Silicon Valley) Always thought SVB to be a good institution catering to high tech.  Maybe they needed more real estate loans tied to prime on their books.. 


     so SVB business model is bit different, they have special loan program for the tech/startup founder but the rule is that they have to invest in SVB.

    This problem actually happened because Peter Thiel is saying to everyone in VC world that they should withdraw their fund from SVB.

    Btw last time I checked all the big VC has large $$$ in SVB, I guess we will see catastropic changes in bay area in next few month. If bank and Gov cant be trusted what can we do :) lol

    All depositors are going to be kept whole. This is an unintended consequence of rapid rise in rates. They'll be taken care of. 

     The thing is most of the "deposit" in SVB is "corporation" account, for example payroll account.

    Guy in roblox and roku can't be paid because thei bank is gone after stupid goverment action :-) even the SVB CEO is not at fault here....

    Exactly why they will be kept whole. This wasn't rampant or foolish speculation. And having Roblox & Roku spread their funds across 100 banks is asinine. Corporate accounts will be taken care of.

     In Asia 30 years ago, the actual bank run happened because "the owner" is really fleeing a country with his private jet full of actual physical money (just like a drug dealer in narco movie). 

    Over here in Silicon Valley, the "Digital bank run" occurred just because one VC is screaming in his social media account to get out their money from the banks LOL and why he said that, just because the bank failed to raise new funds, only after the bank is having large unrealized losses becoz he's buying too much safe government asset (MBS notes), so literally he's *not* even at fault.  

    It's the financial leader in this country that's purposely changed their mind in one day from QT to QE overnight and not thinking about the direct and indirect consequences of their action that causes the problem, it's all started by the mass vaccination from Fauci LOL Omgggg...

  • Rental Property Investor · Indianapolis, IN · Member since 2020 · 562 posts · 554 votes
    3y

    @Jason Malabute

    Fractional reserve banking is at the heart of this and every bank crisis. That policy needs to be dialed back so that a larger reserve is held.

    The Federal Reserve is the 4th central bank in US history. The previous 3 have collapsed because a reserve was not kept in check. The Federal Reserve is neither federal nor a reserve.

  • Lender · Fort Mill, SCinstal · Member since 2016 · 68 posts · 64 votes
    3y
    Quote from @Carlos Ptriawan:
    Quote from @V.G Jason:
    Quote from @Carlos Ptriawan:
    Quote from @Jay Hinrichs:
    Quote from @Mike Dymski:

    Commercial depositors spreading their large deposit accounts across hundreds or thousands of banks is a nonstarter.


    Agreed  thinking that business's should only keep 250k in each bank is ridiculous statement on so many levels.  What about companies that have payrolls of millions a  month they going to have 25 separate banks to deal with ??  And Should syndicators and other investors that are pooling money for a deal and say are raising 5 million in cash they should go out and get 20 separate accounts..  Growing up in Cupertino ( Silicon Valley) Always thought SVB to be a good institution catering to high tech.  Maybe they needed more real estate loans tied to prime on their books.. 


     so SVB business model is bit different, they have special loan program for the tech/startup founder but the rule is that they have to invest in SVB.

    This problem actually happened because Peter Thiel is saying to everyone in VC world that they should withdraw their fund from SVB.

    Btw last time I checked all the big VC has large $$$ in SVB, I guess we will see catastropic changes in bay area in next few month. If bank and Gov cant be trusted what can we do :) lol

    All depositors are going to be kept whole. This is an unintended consequence of rapid rise in rates. They'll be taken care of. 

     The thing is most of the "deposit" in SVB is "corporation" account, for example payroll account.

    Guy in roblox and roku can't be paid because thei bank is gone after stupid goverment action :-) even the SVB CEO is not at fault here....


     SVB leadership is partially at fault (along with the Fed).  SVB put a large portion of their assets in long term instruments like treasuries and MBS.  One of those instruments in MBS was declining in value because of the Fed raising rates which was public knowledge.   Sure it is a paper loss that doesn't even have to be recognized if they hold the paper for 10 years or more, but clearly their liquidity mix was incorrectly calculated.  Their leadership had two issues:

    - How they allocated capital (this is just stupid, but not criminal)

    - The lunacy of doing things like selling stock and paying large bonuses days and hours in some instances before the Feds took over  (I hope they go to jail for this as it was likely criminal)

    Now the question will be the long term changes in banking with the Fed. They blew a hole in FDIC insurance now as they backstopped all deposits, not insured deposits, to quell a bank run. What is the new moral hazard created by the Fed for banks now that they will feel ALL deposits are guaranteed going forward? It would seem that banks are impowered to take on more risk knowing they have a larger backstop. If the Fed doesn't clearly make its actual policy actions known for future events, they have increased risk in the market over the long term IMO.

  • Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Michael Hutchinson:
    Quote from @Carlos Ptriawan:
    Quote from @V.G Jason:
    Quote from @Carlos Ptriawan:
    Quote from @Jay Hinrichs:
    Quote from @Mike Dymski:

    Commercial depositors spreading their large deposit accounts across hundreds or thousands of banks is a nonstarter.


    Agreed  thinking that business's should only keep 250k in each bank is ridiculous statement on so many levels.  What about companies that have payrolls of millions a  month they going to have 25 separate banks to deal with ??  And Should syndicators and other investors that are pooling money for a deal and say are raising 5 million in cash they should go out and get 20 separate accounts..  Growing up in Cupertino ( Silicon Valley) Always thought SVB to be a good institution catering to high tech.  Maybe they needed more real estate loans tied to prime on their books.. 


     so SVB business model is bit different, they have special loan program for the tech/startup founder but the rule is that they have to invest in SVB.

    This problem actually happened because Peter Thiel is saying to everyone in VC world that they should withdraw their fund from SVB.

    Btw last time I checked all the big VC has large $$$ in SVB, I guess we will see catastropic changes in bay area in next few month. If bank and Gov cant be trusted what can we do :) lol

    All depositors are going to be kept whole. This is an unintended consequence of rapid rise in rates. They'll be taken care of. 

     The thing is most of the "deposit" in SVB is "corporation" account, for example payroll account.

    Guy in roblox and roku can't be paid because thei bank is gone after stupid goverment action :-) even the SVB CEO is not at fault here....


     SVB leadership is partially at fault (along with the Fed).  SVB put a large portion of their assets in long term instruments like treasuries and MBS.  One of those instruments in MBS was declining in value because of the Fed raising rates which was public knowledge.   Sure it is a paper loss that doesn't even have to be recognized if they hold the paper for 10 years or more, but clearly their liquidity mix was incorrectly calculated.  Their leadership had two issues:

    - How they allocated capital (this is just stupid, but not criminal)

    - The lunacy of doing things like selling stock and paying large bonuses days and hours in some instances before the Feds took over  (I hope they go to jail for this as it was likely criminal)

    Now the question will be the long term changes in banking with the Fed. They blew a hole in FDIC insurance now as they backstopped all deposits, not insured deposits, to quell a bank run. What is the new moral hazard created by the Fed for banks now that they will feel ALL deposits are guaranteed going forward? It would seem that banks are impowered to take on more risk knowing they have a larger backstop. If the Fed doesn't clearly make its actual policy actions known for future events, they have increased risk in the market over the long term IMO.


     they are not at fault.

    The whole US bank this time has 620 billion unrealized losses because the gov. is intentionally crashing their bond value by increasing the rate. 

    It's powell mistake.

    This is why, outside US banking system, 30 year fixed rate mortgage is non existant, because the bank is taking too much risk from holding people debt.

  • Lender · Southwest Georgia · Member since 2017 · 315 posts · 278 votes
    3y
    Quote from @Nathan Grabau:
    Quote from @Jason Malabute:
    Quote from @Nathan Grabau:

    If this was a crisis that happened because of risky investments I would agree. That being said, this is a crisis that was created because the bank chose the safest asset on earth (US treasury bonds) to put their depositors money into and the Fed kept rates low too long and then raised rates too fast, and focused on lagging indicators all the while knowing they risked collapsing the banking system. If the Fed does not step in, it is likely that there will be a rush on the banks, and these banks will not be able to liquidate assets fast enough to handle the pressure and collapse. As RE investors we like buying opportunities, but we should not like government created banking system failures. 


     I won't complain. I'll just take the opportunity. I'm a capitalist

    How long could you survive if 25-30% of your tenants stopped making payments, and all of your credit lines were frozen. How much opportunity does that create for you?

    The free flow of capital is a cornerstone of capitalism and it is at risk of freezing tomorrow. 


     The Bank did pick the best investment against default risk, but they didn't manage their duration risk. And that is 100% on them. As for your suggestion about tenants not paying, yes I would be in major trouble. But i wouldn't be out there screaming that you and other investors need to give me money to bail me out. 

    Also change the name from Silicon Valley to Midwestern States Bank or Sun Belt Capital bank, do you think they get the help they wanted? 

  • Jay ThomasPro Member
    Real Estate Agent · Houston, TX · Member since 2021 · 1k+ posts · 715 votes
    3y

    That's definitely a valid concern. Real Estate investors in Texas, especially those in Houston, may find themselves adversely affected if only large banks receive bailouts instead of smaller local banks. This could lead to an even more monopolistic banking environment and make it harder for Real Estate investors to access the capital they need. Ultimately this could mean that Real Estate investments become much more difficult or impossible for many people. It would be great if smaller local banks were taken into consideration when determining how bailout money is distributed so that Real Estate markets remain accessible to everyone.

  • Realtor · Dallas - Fort Worth Metroplex, TX · Member since 2016 · 1k+ posts · 925 votes
    3y

    @Jason Malabute amen brother ! Very well said. In my opinion if only politicians and government employees had any sense of business etiquette- America would be in a much different position

  • Lender · Fort Mill, SCinstal · Member since 2016 · 68 posts · 64 votes
    3y
    Quote from @Carlos Ptriawan:
    Quote from @Michael Hutchinson:
    Quote from @Carlos Ptriawan:
    Quote from @V.G Jason:
    Quote from @Carlos Ptriawan:
    Quote from @Jay Hinrichs:
    Quote from @Mike Dymski:

    Commercial depositors spreading their large deposit accounts across hundreds or thousands of banks is a nonstarter.


    Agreed  thinking that business's should only keep 250k in each bank is ridiculous statement on so many levels.  What about companies that have payrolls of millions a  month they going to have 25 separate banks to deal with ??  And Should syndicators and other investors that are pooling money for a deal and say are raising 5 million in cash they should go out and get 20 separate accounts..  Growing up in Cupertino ( Silicon Valley) Always thought SVB to be a good institution catering to high tech.  Maybe they needed more real estate loans tied to prime on their books.. 


     so SVB business model is bit different, they have special loan program for the tech/startup founder but the rule is that they have to invest in SVB.

    This problem actually happened because Peter Thiel is saying to everyone in VC world that they should withdraw their fund from SVB.

    Btw last time I checked all the big VC has large $$$ in SVB, I guess we will see catastropic changes in bay area in next few month. If bank and Gov cant be trusted what can we do :) lol

    All depositors are going to be kept whole. This is an unintended consequence of rapid rise in rates. They'll be taken care of. 

     The thing is most of the "deposit" in SVB is "corporation" account, for example payroll account.

    Guy in roblox and roku can't be paid because thei bank is gone after stupid goverment action :-) even the SVB CEO is not at fault here....


     SVB leadership is partially at fault (along with the Fed).  SVB put a large portion of their assets in long term instruments like treasuries and MBS.  One of those instruments in MBS was declining in value because of the Fed raising rates which was public knowledge.   Sure it is a paper loss that doesn't even have to be recognized if they hold the paper for 10 years or more, but clearly their liquidity mix was incorrectly calculated.  Their leadership had two issues:

    - How they allocated capital (this is just stupid, but not criminal)

    - The lunacy of doing things like selling stock and paying large bonuses days and hours in some instances before the Feds took over  (I hope they go to jail for this as it was likely criminal)

    Now the question will be the long term changes in banking with the Fed. They blew a hole in FDIC insurance now as they backstopped all deposits, not insured deposits, to quell a bank run. What is the new moral hazard created by the Fed for banks now that they will feel ALL deposits are guaranteed going forward? It would seem that banks are impowered to take on more risk knowing they have a larger backstop. If the Fed doesn't clearly make its actual policy actions known for future events, they have increased risk in the market over the long term IMO.


     they are not at fault.

    The whole US bank this time has 620 billion unrealized losses because the gov. is intentionally crashing their bond value by increasing the rate. 

    It's powell mistake.

    This is why, outside US banking system, 30 year fixed rate mortgage is non existant, because the bank is taking too much risk from holding people debt.

    SVB links:

    This is insider trading and possibly criminal behavior:  https://www.thestreet.com/tech...

    This is their liquidity issue is documented here which is poor management and not the industry norm:  https://www.kroll.com/en/insig...

  • Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    3y

    Update Monday morning from Seeking Alpha. Depositors made whole. More big regional bank failures expected:

    U.S. regulators have rushed to minimize the impact of the collapse of Silicon Valley Bank, owned by SVB Financial (SIVB), on the wider financial sector, thereby easing market jitters. Depositors of the shuttered bank will have access to all their funds today, regulators said. Additionally, the Federal Reserve said yesterday it will make additional funding available to eligible depository institutions to avoid damaging bank runs.

    Outlook: The failure of SVB and the Federal Reserve introducing a new type of quantitative easing to backstop the banking sector has traders increasingly betting on a forced Fed pause. U.S. Treasury Secretary Janet Yellen said the government will not bail out banks. Billionaire investor Bill Ackman said the government's actions will boost depositors' trust in the banking system, but he still expects other banks to fail. SA contributor Logan Kane also expects more banks to fail, with some big regional banks already under intense pressure likely to follow soon.

  • Doug SmithPro Member
    Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
    3y

    @Jason Malabute Yes! I am so glad you get it. I've been a lender for 32 years, but half of that time was serving as a bank executive. Banks periodically fail...period. It's not always systemic. One community bank I worked for fired it's president (a professional banker) because the board and the chairman (largest shareholder) didn't like the fact that he refused to give anyone they wanted to give a loan to a loan. The chairman, an attorney by trade and an extremely arrogant know-it-all with no banking background at all, stepped in as president and ran it into the ground. I had delusions of grandeur thinking I could come in and right the ship. They listened for a little while then, when anyone would say "you can't do that", they went back to their old ways. When I joined, it was operating under a "memorandum of understanding", which is the FDIC version of "double-secret probation". The FDIC doesn't want the public to know when a bank is having issues as to avoid an "It's a Wonderful Life"-style run on the bank. Finally, the FDIC stepped in, removed the president, and put in a place a strong professional banker. Banks will fail, but when everyone runs around screaming the sky is falling...that's when we have issues. Economic collapses are partly caused by panic. The Obama administration changed Tier One Capital Requirements where, overnight, banks went from being considered solid to troubled with no change in the balance sheet. The banking system is fine...now if the Federal Reserve would stop injecting themselves into the mix by continually raising rates, we would be fine. Inflation is being caused by the government printing money and increasing M2, the amount of currency in circulation, not by economic growth. If they continue down the path they are on with the rate hikes, we will see issues in the banking system, but for now, I think SV was an isolated incident. I totally agree with you, let businesses/banks fail. If you bail bad actors out every time they get into trouble, they'll just keep doing it.

  • Real Estate Professional · Tampa, FL · Member since 2015 · 176 posts · 252 votes
    3y

    If you look at what has gone on recently with long term low-yield MBS you can see EXACTLY why SVB failed. The worst part is that the suggestion being made in most media articles is that the bank is somehow failing because it backed startups and tech companies. The bank failed because the price of low-yield 10 year plus mortgage backed securities is getting crushed in the open market precisely because the fed keeps raising rates. Rate increases were heavy handed, too much, too soon, and now too prolonged. The economic issues that caused inflation in our economy have little correlation to interest rates and the availability of capital. The fact is the fed should behave like a scalpel but often behaves like a sledge hammer. 

  • Member since 2022 · 485 posts · 216 votes
    3y
    Quote from @Carlos Ptriawan:
    Quote from @Michael Hutchinson:
    Quote from @Carlos Ptriawan:
    Quote from @V.G Jason:
    Quote from @Carlos Ptriawan:
    Quote from @Jay Hinrichs:
    Quote from @Mike Dymski:

    Commercial depositors spreading their large deposit accounts across hundreds or thousands of banks is a nonstarter.


    Agreed  thinking that business's should only keep 250k in each bank is ridiculous statement on so many levels.  What about companies that have payrolls of millions a  month they going to have 25 separate banks to deal with ??  And Should syndicators and other investors that are pooling money for a deal and say are raising 5 million in cash they should go out and get 20 separate accounts..  Growing up in Cupertino ( Silicon Valley) Always thought SVB to be a good institution catering to high tech.  Maybe they needed more real estate loans tied to prime on their books.. 


     so SVB business model is bit different, they have special loan program for the tech/startup founder but the rule is that they have to invest in SVB.

    This problem actually happened because Peter Thiel is saying to everyone in VC world that they should withdraw their fund from SVB.

    Btw last time I checked all the big VC has large $$$ in SVB, I guess we will see catastropic changes in bay area in next few month. If bank and Gov cant be trusted what can we do :) lol

    All depositors are going to be kept whole. This is an unintended consequence of rapid rise in rates. They'll be taken care of. 

     The thing is most of the "deposit" in SVB is "corporation" account, for example payroll account.

    Guy in roblox and roku can't be paid because thei bank is gone after stupid goverment action :-) even the SVB CEO is not at fault here....


     SVB leadership is partially at fault (along with the Fed).  SVB put a large portion of their assets in long term instruments like treasuries and MBS.  One of those instruments in MBS was declining in value because of the Fed raising rates which was public knowledge.   Sure it is a paper loss that doesn't even have to be recognized if they hold the paper for 10 years or more, but clearly their liquidity mix was incorrectly calculated.  Their leadership had two issues:

    - How they allocated capital (this is just stupid, but not criminal)

    - The lunacy of doing things like selling stock and paying large bonuses days and hours in some instances before the Feds took over  (I hope they go to jail for this as it was likely criminal)

    Now the question will be the long term changes in banking with the Fed. They blew a hole in FDIC insurance now as they backstopped all deposits, not insured deposits, to quell a bank run. What is the new moral hazard created by the Fed for banks now that they will feel ALL deposits are guaranteed going forward? It would seem that banks are impowered to take on more risk knowing they have a larger backstop. If the Fed doesn't clearly make its actual policy actions known for future events, they have increased risk in the market over the long term IMO.


     they are not at fault.

    The whole US bank this time has 620 billion unrealized losses because the gov. is intentionally crashing their bond value by increasing the rate. 

    It's powell mistake.

    This is why, outside US banking system, 30 year fixed rate mortgage is non existant, because the bank is taking too much risk from holding people debt.

     So I agree with you about Thiel (our own company yanked out Thursday also). And that caused a lot of pain and the failure. But SVB is partially at fault for being stupid in how thye setup laddering on their treasuries. The timeline for maturity should have been much better. 


    Ultimately though people need ot be more concerned about how Thiel essentially caused a viral panic. Also since SVB went down the number of posts/discussions on social/reddit about removing money from their bank has skyrocketed. My concern is panic in the masses who have no understanding of what is going on. 

  • Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
    3y

    @Jason Malabute 

    In total, U.S. government economic bailouts related to the global financial crisis had federal outflows (expenditures, loans, and investments) of $633.6 billion and inflows (funds returned to the Treasury as interest, dividends, fees, or stock warrant repurchases) of $754.8 billion, for a net profit of $121 billion.

    The investors in SVB will take a haircut big time. You fault businesses for having lots of capital for payroll which is in the millions?

    We the taxpayers made $121 billion and we are complaining. Too big to fail sure sells books and makes headlines but if we had let the banking system fail we would not be doing what we do today. While Powell will be the scapegoated for years to come nobody was complaining about cheap money and now we complain because retirees can earn a little interest on savings. A great country we can complain and do and not end up in jail. 

  • Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @Michael Hutchinson:
    Quote from @Carlos Ptriawan:
    Quote from @V.G Jason:
    Quote from @Carlos Ptriawan:
    Quote from @Jay Hinrichs:
    Quote from @Mike Dymski:

    Commercial depositors spreading their large deposit accounts across hundreds or thousands of banks is a nonstarter.


    Agreed  thinking that business's should only keep 250k in each bank is ridiculous statement on so many levels.  What about companies that have payrolls of millions a  month they going to have 25 separate banks to deal with ??  And Should syndicators and other investors that are pooling money for a deal and say are raising 5 million in cash they should go out and get 20 separate accounts..  Growing up in Cupertino ( Silicon Valley) Always thought SVB to be a good institution catering to high tech.  Maybe they needed more real estate loans tied to prime on their books.. 


     so SVB business model is bit different, they have special loan program for the tech/startup founder but the rule is that they have to invest in SVB.

    This problem actually happened because Peter Thiel is saying to everyone in VC world that they should withdraw their fund from SVB.

    Btw last time I checked all the big VC has large $$$ in SVB, I guess we will see catastropic changes in bay area in next few month. If bank and Gov cant be trusted what can we do :) lol

    All depositors are going to be kept whole. This is an unintended consequence of rapid rise in rates. They'll be taken care of. 

     The thing is most of the "deposit" in SVB is "corporation" account, for example payroll account.

    Guy in roblox and roku can't be paid because thei bank is gone after stupid goverment action :-) even the SVB CEO is not at fault here....


     SVB leadership is partially at fault (along with the Fed).  SVB put a large portion of their assets in long term instruments like treasuries and MBS.  One of those instruments in MBS was declining in value because of the Fed raising rates which was public knowledge.   Sure it is a paper loss that doesn't even have to be recognized if they hold the paper for 10 years or more, but clearly their liquidity mix was incorrectly calculated.  Their leadership had two issues:

    - How they allocated capital (this is just stupid, but not criminal)

    - The lunacy of doing things like selling stock and paying large bonuses days and hours in some instances before the Feds took over  (I hope they go to jail for this as it was likely criminal)

    Now the question will be the long term changes in banking with the Fed. They blew a hole in FDIC insurance now as they backstopped all deposits, not insured deposits, to quell a bank run. What is the new moral hazard created by the Fed for banks now that they will feel ALL deposits are guaranteed going forward? It would seem that banks are impowered to take on more risk knowing they have a larger backstop. If the Fed doesn't clearly make its actual policy actions known for future events, they have increased risk in the market over the long term IMO.


     they are not at fault.

    The whole US bank this time has 620 billion unrealized losses because the gov. is intentionally crashing their bond value by increasing the rate. 

    It's powell mistake.

    This is why, outside US banking system, 30 year fixed rate mortgage is non existant, because the bank is taking too much risk from holding people debt.

     So I agree with you about Thiel (our own company yanked out Thursday also). And that caused a lot of pain and the failure. But SVB is partially at fault for being stupid in how thye setup laddering on their treasuries. The timeline for maturity should have been much better. 


    Ultimately though people need ot be more concerned about how Thiel essentially caused a viral panic. Also since SVB went down the number of posts/discussions on social/reddit about removing money from their bank has skyrocketed. My concern is panic in the masses who have no understanding of what is going on. 


     all these VC guys are just bunch of FOMO guy as well, they would invest to one product/company at a time and withdraw as FOMO as well, there's no diversification for those VC although they seems smart from outside, this is also why you see so many "unicorn" list during cheap money era and those list evaporated during high rate lol

    So the problem with SVB is not SVB specific, all banks do the same, they would buy MBS in last 10 years as those are the only gov. backed up asset that has little bit of interest. 

    Now ask Mr Powell why they print 40% more dollar into the circulation  in April 2000 (Fauci effect) and when he realized the mistake for too long, everyone (bank,private sector,individual) has unrealized loss (from MBS,investment,etc). Gov. can still survive the unrealized loss because they can play with the accounting books and ability to print money , while private sector can't do the same, they would just bite the losses.... 

    The moral dilemma is with Mr. Powell not with SVB CEO.

  • Member since 2022 · 485 posts · 216 votes
    3y
    Quote from @Carlos Ptriawan:
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @Michael Hutchinson:
    Quote from @Carlos Ptriawan:
    Quote from @V.G Jason:
    Quote from @Carlos Ptriawan:
    Quote from @Jay Hinrichs:
    Quote from @Mike Dymski:

    Commercial depositors spreading their large deposit accounts across hundreds or thousands of banks is a nonstarter.


    Agreed  thinking that business's should only keep 250k in each bank is ridiculous statement on so many levels.  What about companies that have payrolls of millions a  month they going to have 25 separate banks to deal with ??  And Should syndicators and other investors that are pooling money for a deal and say are raising 5 million in cash they should go out and get 20 separate accounts..  Growing up in Cupertino ( Silicon Valley) Always thought SVB to be a good institution catering to high tech.  Maybe they needed more real estate loans tied to prime on their books.. 


     so SVB business model is bit different, they have special loan program for the tech/startup founder but the rule is that they have to invest in SVB.

    This problem actually happened because Peter Thiel is saying to everyone in VC world that they should withdraw their fund from SVB.

    Btw last time I checked all the big VC has large $$$ in SVB, I guess we will see catastropic changes in bay area in next few month. If bank and Gov cant be trusted what can we do :) lol

    All depositors are going to be kept whole. This is an unintended consequence of rapid rise in rates. They'll be taken care of. 

     The thing is most of the "deposit" in SVB is "corporation" account, for example payroll account.

    Guy in roblox and roku can't be paid because thei bank is gone after stupid goverment action :-) even the SVB CEO is not at fault here....


     SVB leadership is partially at fault (along with the Fed).  SVB put a large portion of their assets in long term instruments like treasuries and MBS.  One of those instruments in MBS was declining in value because of the Fed raising rates which was public knowledge.   Sure it is a paper loss that doesn't even have to be recognized if they hold the paper for 10 years or more, but clearly their liquidity mix was incorrectly calculated.  Their leadership had two issues:

    - How they allocated capital (this is just stupid, but not criminal)

    - The lunacy of doing things like selling stock and paying large bonuses days and hours in some instances before the Feds took over  (I hope they go to jail for this as it was likely criminal)

    Now the question will be the long term changes in banking with the Fed. They blew a hole in FDIC insurance now as they backstopped all deposits, not insured deposits, to quell a bank run. What is the new moral hazard created by the Fed for banks now that they will feel ALL deposits are guaranteed going forward? It would seem that banks are impowered to take on more risk knowing they have a larger backstop. If the Fed doesn't clearly make its actual policy actions known for future events, they have increased risk in the market over the long term IMO.


     they are not at fault.

    The whole US bank this time has 620 billion unrealized losses because the gov. is intentionally crashing their bond value by increasing the rate. 

    It's powell mistake.

    This is why, outside US banking system, 30 year fixed rate mortgage is non existant, because the bank is taking too much risk from holding people debt.

     So I agree with you about Thiel (our own company yanked out Thursday also). And that caused a lot of pain and the failure. But SVB is partially at fault for being stupid in how thye setup laddering on their treasuries. The timeline for maturity should have been much better. 


    Ultimately though people need ot be more concerned about how Thiel essentially caused a viral panic. Also since SVB went down the number of posts/discussions on social/reddit about removing money from their bank has skyrocketed. My concern is panic in the masses who have no understanding of what is going on. 


     all these VC guys are just bunch of FOMO guy as well, they would invest to one product/company at a time and withdraw as FOMO as well, there's no diversification for those VC although they seems smart from outside, this is also why you see so many "unicorn" list during cheap money era and those list evaporated during high rate lol

    So the problem with SVB is not SVB specific, all banks do the same, they would buy MBS in last 10 years as those are the only gov. backed up asset that has little bit of interest. 

    Now ask Mr Powell why they print 40% more dollar into the circulation  in April 2000 (Fauci effect) and when he realized the mistake for too long, everyone (bank,private sector,individual) has unrealized loss (from MBS,investment,etc). Gov. can still survive the unrealized loss because they can play with the accounting books and ability to print money , while private sector can't do the same, they would just bite the losses.... 

    The moral dilemma is with Mr. Powell not with SVB CEO.

    So all the banks have exposure to treasuries no doubt. I had a few discussions with some of them over last few days. They are all acknowledging, all acknowledge Thiel - as you know common knowledge to those of us in tech - but their laddering of the treasuries was very poor. That is where the other banks were smarter.

    Had they had a range of timelines on treasuries they would have been able to pay the debts. 

    That said Thiel caused a rampage in the VC / tech world. 

    So I do agree with you. but let’s acknowledge the fact that their maturity on the bonds was piss poor. Because it was.

  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    3y

    Take care of the 'innocent' (ha) taxpayer/investor up to the $250k limit and no more. Let the banks fail. That is the way the game/rules are set up and should be played. Everyone knew the rules going in, including the part where the Feds can raise rates.

    SVB and now Signature Bank....? How many more? It appears that SVB was throwing money at 'woke' policies and that was part of the waste and fraud that they were engaged in....including large payouts to executives just before they went under. Not only should SVB be allowed to go under, they should take some of it's leadership and put them in jail......

  • Lender · Fort Mill, SCinstal · Member since 2016 · 68 posts · 64 votes
    3y
    Quote from @Carlos Ptriawan:
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @Michael Hutchinson:
    Quote from @Carlos Ptriawan:
    Quote from @V.G Jason:
    Quote from @Carlos Ptriawan:
    Quote from @Jay Hinrichs:
    Quote from @Mike Dymski:

    Commercial depositors spreading their large deposit accounts across hundreds or thousands of banks is a nonstarter.


    Agreed  thinking that business's should only keep 250k in each bank is ridiculous statement on so many levels.  What about companies that have payrolls of millions a  month they going to have 25 separate banks to deal with ??  And Should syndicators and other investors that are pooling money for a deal and say are raising 5 million in cash they should go out and get 20 separate accounts..  Growing up in Cupertino ( Silicon Valley) Always thought SVB to be a good institution catering to high tech.  Maybe they needed more real estate loans tied to prime on their books.. 


     so SVB business model is bit different, they have special loan program for the tech/startup founder but the rule is that they have to invest in SVB.

    This problem actually happened because Peter Thiel is saying to everyone in VC world that they should withdraw their fund from SVB.

    Btw last time I checked all the big VC has large $$$ in SVB, I guess we will see catastropic changes in bay area in next few month. If bank and Gov cant be trusted what can we do :) lol

    All depositors are going to be kept whole. This is an unintended consequence of rapid rise in rates. They'll be taken care of. 

     The thing is most of the "deposit" in SVB is "corporation" account, for example payroll account.

    Guy in roblox and roku can't be paid because thei bank is gone after stupid goverment action :-) even the SVB CEO is not at fault here....


     SVB leadership is partially at fault (along with the Fed).  SVB put a large portion of their assets in long term instruments like treasuries and MBS.  One of those instruments in MBS was declining in value because of the Fed raising rates which was public knowledge.   Sure it is a paper loss that doesn't even have to be recognized if they hold the paper for 10 years or more, but clearly their liquidity mix was incorrectly calculated.  Their leadership had two issues:

    - How they allocated capital (this is just stupid, but not criminal)

    - The lunacy of doing things like selling stock and paying large bonuses days and hours in some instances before the Feds took over  (I hope they go to jail for this as it was likely criminal)

    Now the question will be the long term changes in banking with the Fed. They blew a hole in FDIC insurance now as they backstopped all deposits, not insured deposits, to quell a bank run. What is the new moral hazard created by the Fed for banks now that they will feel ALL deposits are guaranteed going forward? It would seem that banks are impowered to take on more risk knowing they have a larger backstop. If the Fed doesn't clearly make its actual policy actions known for future events, they have increased risk in the market over the long term IMO.


     they are not at fault.

    The whole US bank this time has 620 billion unrealized losses because the gov. is intentionally crashing their bond value by increasing the rate. 

    It's powell mistake.

    This is why, outside US banking system, 30 year fixed rate mortgage is non existant, because the bank is taking too much risk from holding people debt.

     So I agree with you about Thiel (our own company yanked out Thursday also). And that caused a lot of pain and the failure. But SVB is partially at fault for being stupid in how thye setup laddering on their treasuries. The timeline for maturity should have been much better. 


    Ultimately though people need ot be more concerned about how Thiel essentially caused a viral panic. Also since SVB went down the number of posts/discussions on social/reddit about removing money from their bank has skyrocketed. My concern is panic in the masses who have no understanding of what is going on. 


     all these VC guys are just bunch of FOMO guy as well, they would invest to one product/company at a time and withdraw as FOMO as well, there's no diversification for those VC although they seems smart from outside, this is also why you see so many "unicorn" list during cheap money era and those list evaporated during high rate lol

    So the problem with SVB is not SVB specific, all banks do the same, they would buy MBS in last 10 years as those are the only gov. backed up asset that has little bit of interest. 

    Now ask Mr Powell why they print 40% more dollar into the circulation  in April 2000 (Fauci effect) and when he realized the mistake for too long, everyone (bank,private sector,individual) has unrealized loss (from MBS,investment,etc). Gov. can still survive the unrealized loss because they can play with the accounting books and ability to print money , while private sector can't do the same, they would just bite the losses.... 

    The moral dilemma is with Mr. Powell not with SVB CEO.

     I don't think that is correct.  From the article I linked above (why SVB is unique):

    When interest rates were at zero, tech start-ups could promise to spend years building AI/machine learning/flying taxis/robots to take care of the elderly and then make a lot of money far in the future, and that was an attractive business proposition. When interest rates rose, a dollar today became better than a dollar tomorrow, and so investors started demanding cash flows. As the Fed hiked rates, the cash being thrown at tech start-ups dried up.

    Instead, tech firms had to take their money out of the bank to pay for rent and salaries. SVB’s deposit base fell significantly over the course of 2022. Instead of having its assets tied up in loans (which broadly tend to have floating exchange rates and shorter terms), SVB held bonds (which broadly tend to have fixed interest rates and longer terms). Fixed-rate securities accounted for 56 per cent of SVB’s assets, compared with 25 per cent at Fifth Third and 28 per cent at Bank of America. The average maturity of SVB hold-to-maturity bonds was 6.2 years at the end of 2022.

    To redeem client’s deposits, SVB had to sell assets at a big loss. As clients worried about the stability of SVB, they rushed to yank their own deposits, starting a bank run. Unrealized losses snowballed and “completely subsumed the $11.8 billion of tangible common equity that supported the bank’s balance sheet,” meaning that SVB was technically insolvent. The California Department of Financial Protection and Innovation took possession of SVB and appointed the FDIC as receiver, citing inadequate liquidity and insolvency.

    The other thing that was unique to them, and I haven't seen a good summary of it, was that they offered unique lending and/or platforms to IPO's which is why they sucked in all of those investments.  However, they added a stipulation that you had to keep the deposits at SVB to qualify.  I think more information comes out later and is possibly one of the reasons so many business kept so much capital there.

    Powell and the Fed are definitely a huge part of this issue, but not the only part.

  • Member since 2022 · 485 posts · 216 votes
    3y

    @Michael Hutchinson  The average maturity of SVB hold-to-maturity bonds was 6.2 years at the end of 2022. 

    That was the big piece that hurt them. They didn’t ladder them appropriately for maturity. 

    That said given the talk across VC/Tech companies I think Thiel’s commentary would have caused them to sink regardless. But the maturity curve was very bad planning.

  • Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
    3y

    Appreciate the thoughts and the passion. It doesn't seem like this is the result of SVB making high-risk investments however. I don't think anyone considers US treasury bonds high risk. This wasn't bad lending practices like what lead to the 2008 crisis.  SVB had bought long-term bonds, usually considered a very safe investment. All banks make short-term deposits available for long-term investments. The Fed seems to have caused this by manipulating the interest rate and changing yield curves more dramatically than most people expected. Looking backward, mistakes were made by the higher-ups at SVB. But to be fair, risk management becomes very tricky when the goalposts are constantly shifting and it's easy to see those mistakes now but not as easy to predict what the Fed will do. They held interest rates too low for too long and have been raising them too fast. Now the government is stepping in and using bank fees (not taxpayer money) to make sure a bunch of tech startups can pay their employees this week and stay in business (and to prevent more widespread panic and other banks to collapse), which makes a lot of sense IMO. Making depositors whole isn't rewarding bad behavior (the depositors didn't do anything wrong). The banks CEO's should be fired if it turns out they did indeed fail at risk management, paid themselves bonuses or sold off shares/engaged in insider trading or otherwise contributed to the collapse, and losing their jobs or facing criminal charges will be their punishment. If they did indeed fail to respond to orders transferring money out, then part of that punishment will also come from a flurry of lawsuits. 

    One take-away is how social media combined with technology which makes it easier to withdraw funds more quickly has increased the risk of bank runs. VC's and Peter Thiel being alarmists also didn't help by fueling the flames. Funny how libertarians turn into communists overnight when it's their money and livelihoods at risk from the "free market". 

  • Rental Property Investor · San Diego, CA · Member since 2011 · 1k+ posts · 1k+ votes
    3y

    Everyone has a plan until they get punched in the mouth - Mike Tyson

  • Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Bruce Woodruff:

    Take care of the 'innocent' (ha) taxpayer/investor up to the $250k limit and no more. Let the banks fail. That is the way the game/rules are set up and should be played. Everyone knew the rules going in, including the part where the Feds can raise rates.

    SVB and now Signature Bank....? How many more? It appears that SVB was throwing money at 'woke' policies and that was part of the waste and fraud that they were engaged in....including large payouts to executives just before they went under. Not only should SVB be allowed to go under, they should take some of it's leadership and put them in jail......


     Powell, woke culture, Fauci, Crypto , FTX, Silvergate Bank, SVB CEO, VC, instragram....they are all ruining the civilization LOL.

  • Rental Property Investor · South shore, MA · Member since 2017 · 1k+ posts · 1k+ votes
    3y

    10 Year treasury is way down because of all this, meaning interest rates are going down.

    Not sure about you guys, but in my area we have lines out the door for open houses. I only see this creating even more demand for an already lacking housing inventory. 

    Interesting times for sure...

  • Jason MalabuteBusiness Member
    OP
    Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 906 votes
    3y
    Quote from @Michael Hutchinson:
    Quote from @Jason Malabute:
    Quote from @Michael Hutchinson:
    Quote from @Jay Hinrichs:
    Quote from @Mike Dymski:

    Commercial depositors spreading their large deposit accounts across hundreds or thousands of banks is a nonstarter.


    Agreed  thinking that business's should only keep 250k in each bank is ridiculous statement on so many levels.  What about companies that have payrolls of millions a  month they going to have 25 separate banks to deal with ??  And Should syndicators and other investors that are pooling money for a deal and say are raising 5 million in cash they should go out and get 20 separate accounts..  Growing up in Cupertino ( Silicon Valley) Always thought SVB to be a good institution catering to high tech.  Maybe they needed more real estate loans tied to prime on their books.. 


    In 2008 I think they changed the FDIC limit from $100k to $250k. I suspect they create a second business FDIC limit at say $10M now IMO. This gives businesses some flexibility and eases the risk. Now, that might mean competence from the Federal Reserve which we haven't seen recently (COVID cash, keeping rates too long and raising them too fast), but that is my guess on the mid-term fix.

    Short term though,

    - Big banks get bigger ... again

    - Lots of deposits flow to short term treasuries

    - Fed announces they are pausing interest rates hikes because they have miscalculated the risk in the market (not sure they say that though)

    I agree though that I would not do a big bailout for those deposits.  Maybe 50 cents on the dollar as you don't want to encourage future risk with an implied government guarantee.  


     didn't they propose or do something like that in the 90s? not sure


     Not that I am aware of.   Heard the suggestion today on a podcast "unheard".   Most of the suggestions I didn't love, but that one hit me as right.   Here are the changes that actually went through, not sure what was proposed though.


    History and Timeline of Changes to FDIC Coverage Limits - ADM (americandeposits.com)



    History and Timeline of Changes to FDIC Coverage Limits - ADM (americandeposits.com)


     thanks for this

    Malabute & Company CPAs525 Reviews
  • Jason MalabuteBusiness Member
    OP
    Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 906 votes
    3y
    Quote from @Lucia Rushton:

    @Jason Malabute amen brother ! Very well said. In my opinion if only politicians and government employees had any sense of business etiquette- America would be in a much different position


     thank you

    Malabute & Company CPAs525 Reviews
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