SVB and the only choice we have

Yves is here. This post highlights a point that almost every major source covers the collapse of the SVB and the subsequent financial bailout: the liberalization of the discount window and the creation of a bank term financing program together achieve what is just a stone’s throw away from fully supporting uninsured deposits, while at the same time allowing officials to pretend that they did not expand huge subsidies to banks. Biden officials say banks will be forced to pay for all of these new benefits, though even now they are not paying the full cost of FDIC deposit insurance.

However, the message misunderstands a key element of the SVB contributor’s power dynamics. It is not venture capital backed companies that have chosen or agreed to keep all of their deposits in SVB. It was their VCs who forced this arrangement on them, as a reader confirmed: “I speak as a former client, as dictated by my VCs.” This distinction is important because it places the center of influence and trade in services much higher up the food chain.

Thomas Neuburger. Originally posted on God’s spies

He is not a socialist.

Last week’s collapse of the Silicon Valley Bank (SVB) and its subsequent bailout can tell us a lot about the state of our lives, the nation state we live in, and what we’re left to do if we’re unhappy with things the way they are. .

What happened to SVB?

Let’s start with why the bank collapsed. In short, the bank was undercapitalized, its assets were excessively exposed to rising interest rates, and it had too many accounts with assets above the $250,000 FDIC-covered limit. All of this came after a classic foray into bank deposits.

As one banking analyst wrote in an email (italics mine):

Silicon Valley Bank is the 16th largest bank in the United States, whose clients are mainly high-tech firms. Happy Thursday SVB Financial Group shares fell 60%after it was revealed more than $20 billion worth of securities have been sold. which led to almost $2 billion loss. The sale followed a larger-than-expected decline in deposits as its customers withdrew most of their funds on deposit to pay their bills faster than the bank expected. SVB was fairly well capitalized invested in treasury bonds with a longer maturity, the value of which has declined because the Fed has raised rates to fight inflation, so his rush to sell securities to replenish cash [this is the bank run; depositors wanted out] resulted in significant losses. On Friday morning, SVB was looking to raise capital from willing institutional investors, but clients have already withdrew a significant portion of their deposits, essentially depriving a small opportunity for a quick sale to a larger institution. By late afternoon on Friday, the bank was officially closed by California regulators and handed over to the FDIC.

The bank’s assets amounted to $210 billion. Uninsured deposits counted $160 billion. A run on the bank’s assets in the form of a rush to transfer deposits to other institutions was expected to begin next Monday (amid some speculation that the big savers themselves will instigate a flight screaming for salvation).

To prevent this from happening, the FDIC decided to extend interest rate protection free of charge to every dollar deposited starting Monday. Crystal Ball and Saagar Enjety explain:

Washington Post reporter Jeff Stein made a TikTok on why this is so still really salvation. Of course, the saved are asked to disagree. Just like one of the members of the super rich class wrote:

It wasn’t a rescue. During the GFC, the government injected taxpayer money in the form of preferred stock into banks. Bondholders were protected and shareholders were diluted to varying degrees. Taxpayers’ money was at great risk. Many people who screwed up suffered minimal… https://t.co/mjwcnVRV9X

— Bill Ackman (@BillAckman) March 13, 2023

Can’t lift these 2008can we?

Feb. 13, 2010 — The government is bailing out the financial system for $700 billion. in 2008 it was as popular as “rescuing rattlesnakes,” Vice President Joe Biden said Friday in Seattle. “Actually,” he joked, “I like some snakes better.”

Don’t forget the (ironic) part of this Fed story – “because the Fed raised rates in the fight to control inflation.” In its quest for impoverish V working class by increasing unemployment rate up to 4.6%he accidentally depleted his own or a large dollar portion of his Big Tech property.

All this and corruption too

It is very possible, one might even say probable, that these huge deposits – Roku alone kept almost half a billion dollars in one account – were part of corrupt set of practices the bank itself and its major customers.

SVB generally requires, as part of its venture capital investments in growth companies, that the money be held in an account with SVB. SVB will then offer concierge services, I think they called it “white glove”, services to founders including personal loans, mortgages, etc.

— Dhananjay (DJ) Gildyal (@Dj_Ghildyal) March 12, 2023

David Dayen in a great comprehensive article: writes: “So you have depositors who either didn’t know anything about risk management or were bribed by the bank into neglecting it.”

Keep in mind who these contributors are: the very, very rich in the West Coast venture capital world. Corruption began not only with the bank. Often it was initiated by venture capitalists. As a friend and former Silicon Valley entrepreneur recently remarked to me:

SVB was a special case. Venture capitalists demanded that the companies they funded keep their money there. So companies (and their employees) were indeed victims, not risk incompetent. In return, venture capitalists received various services from the bank. Here’s how Silicon Valley works behind the scenes. I was in one deal where Leading venture capital for our funding required a secret kickback of a certain percentage of the company’s shares, and that this arrangement be kept secret from the firm.. This is typical.

Where does it leave us, part I

What is left for us here is that the US banking system, which was not private in my recent memory, was officially taken over by the federal government, and now every dollar deposited, de facto FDIC insured.

The Fed says its new credit line is large enough to cover all uninsured U.S. deposits and that it is “ready to address any liquidity issues that may arise.” https://t.co/XwS40BS4hk @FinancialTimes

— Colby Smith (@colbyLsmith) March 12, 2023

To cover these claims, the FDIC usually collects money from banks that receive insurance claims. This means covered banks pre-deposit a reasonable amount of savings for depositors up to $250,000 per account.

What should be a “reasonable amount” to cover all funds on deposit in the US? Are banks ready for early repayment? Very unlikely. After all, who will make them? The government they control?

So the federal government nationalized the banking system or nationalized bank deposit insurance up to 100% risk, all at no new cost to the banks.

What do you think these banks will do next, getting rid of this anxiety? I hesitate to find out, but I know that we are going to do it.

Where does this leave us, part II?

The second “where does that leave us?” leaves the financial sphere and moves into the political. If Saagar Enjety is right (see clip above), the rich have decided that taking even a 10 percent loss (“haircut”) from the normal spin-off process is still too much to ask.

Meanwhile, in East Palestine, Ohio where the working class makes their living, this went on:

With a population of about 5,000 people, there are about 2,600 dwellings in East Palestine. according to Attom, a provider of property data. According to Attom, the average property value in January of this year before the derailment was $146,000.

Combined, the value of all residential real estate in the city is about $380 million, including single-family homes and apartment buildings.

These values ​​are only part of the money Norfolk Southern makes. Last year, the company posted a record operating income of $4.8 billion and net income of $3.3 billion, up about 9% from a year earlier. As of December 31, he had $456 million in cash on his books.

He returns most of this profit to the shareholders, $3.1 billion share buyback. last year and spending $1.2 billion in dividends. And announced a 9% dividend increase just days before the crash.

A year ago, its board approved a $10 billion share buyback plan, and as of December 31, it had the right to buy back $7.5 billion of the remainder of the plan. (Highlight added)

The point couldn’t be simpler. When the rich suffer losses, the government they control helps them, if necessary, within a few days.

When the rest of us face losses, we are on our own. Neither the rich who have made a mess nor the government representing “the people” will take up the cause.

And it will always be so, unless force is used.

The only choice

Which brings us to the heart of this piece. If really…

• The culture of the obscenely rich is “pathological” and predatory.

• There is one set of rules for the rich, another for the rest of us.

• They will never stop asserting their right to profit and prosper at the expense of others until they are stopped by force.

• Anger against this predation burned after Obama’s rescue 2008.

• Popular anger is bipartisan. Both Republicans and Progressives, standing at the voter’s lever, share the same sentiments.

• None of the institutional parties wants to save real workers. There are two bad options − Status Quo Party And Fake Revolt Party.