OBSERVATIONS FROM THE FINTECH SNARK TANK
If you’re here for an explanation of the Silicon Valley Bank (SVB) collapse you’re in the wrong place because this article isn’t going to explain what happened. Instead, it’s going to expose the bad takes—the lies, the misconceptions, the insults, and the incitements to 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, every Tom, Dick and Harry on social media seems to suddenly know how to re-invent banking.”
Sometimes they’re on the Wall Street Journal.
Of all the bad takes coming out of the SVB collapse, perhaps the worst is from WSJ columnist Andy Kessler who wrote:
“In its proxy statement, SVB notes that besides 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 demands.”
Distracted by diversity demands? Nonsense. This statement was nothing more than a cheap shot at DEI—and incredibly offensive one at that. You might not like who the bank donated to or lent money to, but here’s 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 editing an article from presidential candidate Vivek Ramaswamy titled SVB Doesn’t Deserve a Taxpayer Bailout.
Right off the bat this is wrong, since SVB didn’t get a bailout, nor was that ever the plan. The bailout is for SVB deposit holders, many of whom are startup technology companies. Ramaswamy, however, doesn’t think they deserve a bailout:
“Venture capitalists are arguing that if SVB fails, startup founders who banked with SVB should be spared the fallout, but this is also wrong. Startup executives must do better in managing financial risks and diversifying across counterparties. Many tech founders 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 preserve greater equity ownership in their companies. Taxpayers were never going to participate in that equity upside, so they shouldn’t be asked to foot the bill when downside risks materialize.”
Two problems here:
- Imagine that the failing bank was a community bank serving mom and pop businesses on Main Street USA. Would Ramaswamy argue that Mom and Pop “must do better in managing financial risks and diversifying across counterparties”? Doubtful. So why should “startup founders” be held to a different criteria?
- The logic at the end of the statement is nonsense. Taxpayers foot the bill for plenty of things in which they don’t get to benefit from or participate in. Singling out this example is a weak argument.
Another misinterpretation of who gets the bailout came from Rep. Thomas Massie the US representative for Kentucky’s 4th congressional district in this tweet:
Granted, SVB held deposits from some “very rich” people, but the bank’s client base included startup technology companies which employ many people who would not be considered “very rich.” Protecting those depositors—i.e., the tech startups—enables them to make payroll and pay their bills.
When confronted with this oversight, Massie replied, “We are told that SVB uninsured accounts of concern are largely those of startups that have received venture capital money. Those venture capital funds do have institutional investors as well as individual investors who, by law, have to be wealthy to qualify to invest.”
Huh? Being funded by venture capital funds has nothing to do with protecting SVB’s depositors.
The Fear Mongers
For most normal, rational people, being called a “fear monger” isn’t 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 apparently was stuck on CAPS LOCK all weekend—warned his followers that the situation was at “DEFCON1” and that they should bail on SVB if a white knight wasn’t found. His tweet about Americans lining up at banks to demand their money was viewed 6 million times.
In a since-deleted tweet, Calacanis asked “who else is going to buy some guns, provisions, and gasoline tomorrow?”
After the government stepped in and announced that it would backstop uninsured as well as the FDIC-insured deposits, Calacanis announced that his “work here is done.”
Calacanis’ partner-in-slime on the All-In Podcast, David Sachs, agreed:
As Twitter user @mattcasey_dt replied, “Without us creating a panic, the government might never have realized they needed to do something about the panic we created.”
For sure, other fear mongers played a role here:
- Mark Tluszcz, CEO of Mangrove Capital, tweeted: “If you are not advising your companies to get the cash out, then you are not doing your job as a board member or as a shareholder.”
- Michael Burry, the hedge fund manager who became famous for betting on the subprime mortgage collapse that sparked the 2008 financial crisis, compared Silicon Valley Bank to Enron in another since-deleted tweet, “It is possible today we found our Enron.”
- Investor Bill Ackman—who had no problems 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, runs on other banks would occur.
[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 executive tweeted:
“If you were one of the founders trying to become the next billionaire/Elon Musk type with $$millions of VC money and you lost your business and investors’ money in uninsured deposits at SVB, you didn’t deserve the opportunity in the first place. Stop whining.”
In another tweet in response to the female founder of a fintech that recently shut down (unrelated to SVB), this same ex-CFPB exec tweeted:
“If you are another upper middle class white kid taking $10 million from VCs so you can become another billionaire, grow up and figure out how to not lose your investors money from a bank run.”
The CEO of a startup tech company who, in his Twitter bio, says that entire adult life “has been a study in risk—as a naval officer, as a FX market maker, as a risk manager, as a fundamental investor, and as an entrepreneur,” tweeted:
“Every startup that parked their cash with SVB deserves to fail.”
This, by the way, is from a guy whose pinned 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. Our being victims and villains. Only then can we maybe rescue the world.”
Crises Shine a Spotlight on Society
Some crises—like 9/11—bring out a lot of the good in a lot of the people. The Silicon Valley Bank crisis has done the opposite.
The number of bad takes on the situation—in social media as well as via mainstream media channels—are too numerous to mention, and come from sources who don’t deserve to be singled out.
It didn’t take long, however, for the narrative of the crisis to go from blaming SVB management for poor asset/liability management to blaming Trump and “wokeness.”
We might not have even heard much of the woke argument if Elon Musk had not acquired Twitter. It’s interesting to consider how much of the SVB conversation on Twitter would have been labeled “disinformation” or censored altogether.
Congressman Patrick McHenry, chairman of the US House Financial Services Committee, referred to the turmoil as, “the first Twitter-fueled bank run.”
It was predictable, however.
In 2007, Andrew Keen published Cult of Amateur — How Today’s Internet is Killing Our Culture, promoting the idea that mainstream media, copyrights, and the public trust would be compromised by the profusion of content on blogs, YouTube, and other venues. He described the situation as “ignorance meets egoism meets bad taste meets mob rule.”
In a later book, Digital Vertigo, Keen argued that the profusion of sharing online is dividing, diminishing, and disorienting humanity. He lamented that a kind of “digital narcissism” was becoming a salient feature of our culture.
The Silicon Valley Bank debacle is making Keen look like a genius.