Fingers are pointing in every direction as the fallout of the collapse of Silicon Valley Bank (SVB) continues to settle.
Key Details
- President Joe Biden said on Monday that he is “firmly committed to holding those responsible for this mess fully accountable,” but it’s not abundantly clear who that is.
- The Home Depot co-founder Bernie Marcus blamed the rise of “woke” investments, saying that SVB’s agenda in investing in climate change or ESG harmed its returns.
- Senator Bernie Sanders (D-VT) blamed President Donald Trump’s 2018 bank deregulation bill for increasing the likelihood of another 2008-style bank failure.
- Napkin Math writer Evan Armstrong says that the crisis was a social-media-induced bank run started by one small business newsletter run by an Austin, Texas blogger named Byrne Hobart, with 48,000 subscribers.
Why It’s Important
The collapse of SVB represents one of the largest financial disasters since the collapse of Enron, although last year’s collapse of FTX is comparable in its impact and size.
As we previously reported, Thursday’s venture-capitalist bank run was largely caused by two factors—the tightening of monetary policy by the Federal Reserve and high inflation. High-interest rates made access to funds more difficult for startups, and a high volume of outflows put more pressure on the bank. Within a few days, SVB was ceased by federal regulators, major banks saw a collective devaluation of $55 billion, and several smaller banks like Signature Bank also collapsed.
As Armstrong notes, Hobart’s blog is small but influential, with him saying, “pretty much every venture capitalist I know reads” The Diff. Hobart tweeted on February 23 that “in today’s newsletter: Silicon Valley Bank was, based on the market value of their assets, technically insolvent last quarter and is now levered 185 to one.” This message allegedly resulted in multiple large investors pulling their funds from SVB.
Regardless of the actual cause, it is undoubtedly that the collapse of SVB will have a profound effect on banking policy going forward. Republicans and Democrats are already pushing narratives that the collapse was caused by “diversity” or “deregulation,” respectively. President Biden already says that he will continue his “efforts to strengthen oversight and regulation of larger banks so that we are not in this position again.”
“Kinda insane that this entire debacle was potentially caused by Byrne Hobart’s newsletter. Here’s how the butterfly effect happened. 1) Byrne posts this article/Tweet calling out SVB’s risk. 2) Pretty much every venture capitalist I know reads this newsletter. 3) They all start to pay very, very close attention to SVB earnings. 4) Absolutely massive earnings miss by SVB. 5) Peter Thiel, USV, and Coatue are first to send out messages/mass emails to portfolio co’s to pull out funds. 6) Tech Twitter catches word of this. 7) Bank Run. 8) Collapse. 9) If FDIC/Buyer doesn’t come in, in the next seven days, potential 20%+ collapse of entire startup industry. All started by one overly prolific dude in Austin. Amazing,” tweeted Armstrong.
Notable Quote
“Maybe the American people will finally wake up and understand that we’re living in very tough times, that, in fact, a recession may have already started,” The Home Depot’s Bernie Marcus tells Fox News over the weekend. “I think that the system [and] the administration has pushed many of these banks into [being] more concerned about global warming than they do about shareholder return. And these banks are badly run because everybody is focused on diversity and all of the woke issues and not concentrating on the one thing they should, which is shareholder returns.”