Wait ... what?

FYI, NPR has more information about this story: Web Link

"A bank that caters to many of the world's most powerful tech investors collapsed on Friday and was taken over by federal regulators, becoming one of the largest lenders to fail since the 2008 Global Financial Crisis."

"Although it was not in the same league as, say, Goldman Sachs or J.P. Morgan Chase, Silicon Valley Bank, or SVB, punched above its weight during its 40-year history."

"But in recent months, many of Silicon Valley Bank's clients had been withdrawing money at a time when the tech sector as a whole has been suffering.

SVB said earlier this week, that in order to make good on those withdrawals, it had to sell part of its bond holdings at a steep loss of $1.8 billion. Bonds and stocks have been hammered since last year, as the Federal Reserve has raised interest rates aggressively, and SVB also noted it wanted to pare down its bond portfolio to avoid further losses.

But that announcement spooked the bank's clients, who got worried about SVB's viability, and then proceeded to withdraw even more money from the bank — a textbook definition of a bank run."

Scary, horrible news.

Jusat an Observation,

This is just the beginning. Interest rates are going to keep going up, and property values, which most banks use as Commercial and Residential Mortgage Backed Securities are going to fall apart,

And unlike last time the Fed reserve cannot reduce rates because they are in debt. And the U.S. Government cannot bail out the banks again because they have too much debt.

So this time there will be no bail out for this real estate bubble. About time anyway, because especially in CA they didn't see a truer correction from 2008.

So if property values correct, by as much as 30% this can be a way of increasing affordability. Unfortunately many mortgages might be called by banks because they are losing money, or the banks die and new lenders are not forced to honor original contracts. They might try to get insurance from FDIC regarding them, but FDIC will be in debt tooo much too.

More on this story, from David Sirota: "SVB Chief Pressed Lawmakers To Weaken Bank Risk Regs" - Web Link Once again, wealthy bankers put pressure to do what is best for THEM, regardless of impact on ordinary people. This is the status quo for America. Political donations are legalized bribery.

"Eight years before the second-largest bank failure in American history occurred this week, the bank’s president personally pressed Congress to reduce scrutiny of his financial institution, citing the “low risk profile of our activities and business model,” according to federal records reviewed by The Lever.

Three years later — after the bank spent more than half a million dollars on federal lobbying — lawmakers obliged."

...

"In 2015, SVB President Greg Becker submitted a statement to a Senate panel pushing legislators to exempt more banks — including his own — from new regulations passed in the wake of the 2008 financial crisis. Despite warnings from some senators, Becker’s lobbying effort was ultimately successful."

After the crash of 1929, a set of laws were passed by a Congress to ensure "never again". Those laws worked pretty well for almost 70 years. The last of them were repealed in 1999, when the Gramm–Leach–Bliley Act was signed into law by President Bill Clinton. Less than a decade later, we had the crash of 2008 and the Great Recession. Surprise!

Nothing was done under Obama to ensure that the Great Recession would never happen again. We remain vulnerable, it can happen again. Remember, Obama bailed out the banks while ordinary Americans lost their homes and life savings. BTW, "SVB added former Obama Treasury Department official Mary Miller to its board, noting she had previously helped oversee “financial regulatory reforms.”"

This story just goes to show how lawmakers (both red and blue) get pressured into ('lobbied" / "bribed") into giving bankers exactly what they want.

The REAL reality will hit on Monday, But CNBC is already reporting that the investors in SVB are asking for a bail out. Web Link

Wait, these guys a PRIVATE VC’s so they have no insurance protections, hahahha!

KEY POINTS

Voices from tech and finance are increasingly calling for the federal government to push another bank to take over the failed Silicon Valley Bank to protect uninsured deposits.

Their main concern is that a failure to protect deposits over $250,000 could cause a loss of faith in other mid-sized banks.

Some observers called out the irony of the venture capital community calling for government aid after many VCs spurred their portfolio companies to withdraw money after SVB released a surprise statement about its financial situation on Wednesday night.

This is going to be a lot of fun to watch. Sorry but I have no mercy on those that played the tune “FAKE IT TILL YOU MAKE IT”

Tis news said:

“But the vast majority of SVB’s customers were businesses that had more than that on deposit at the bank. As of December, more than 95% of the bank’s deposits were uninsured, according to regulatory filings. Many of these depositors are startups, and many are concerned that they will not be able to make payroll this month, which in turn could spark a wide wave of failures and layoffs in the tech industry.”

Too many dumb businesses, Anyone with a high school diploma should have known that accounts should have been segmented at the $250,000 limits. That is what a degree in Business would have taught you. So these guys are screwed.

Let the system go, and let the market continue to correct. We cannot afford another bail in or bail out this time

I figure the worst loss that the large depositors will suffer on their uninsured deposits is likely to be maybe 5-10%. They may not even lose any. It's not a case of the bank failing and all the money is gone. This was never as scary as the depositors thought. The bank bought mortgage backed securities which are pretty safe if the overall economy doesn't collapse. They weren't being risky. Then when the Fed raised the interest rates so much and so quickly, the value of the MBS holding dropped in value because their yield was less than what was happening with new issues. But they only drop by an amount to get the yield back up to market rates, but devaluing the principal.

I'm assuming they spread their committments out in different time frames so some investments are more affected than ohers. If things line up just right then they m ight lose overall more than 10% but not too likely. Hopefully they didn't buy 30 year notes expecting to be able to unload them easily when they needed too but have some that will mature way sooner than 30 years, so won't lose much value at all.

And of course this happened to every bank's long term bond holdings and MBS and the like. It could affect performance at other banks and it could happen to another bank too if the depoistors all get spooked at once and run on that bank. But it's likely that SVB was one of the worst cases, not reproduced at other banks.

The Republicans dropped bank mark to market rules for the smaller banks like SVB back iin 2018 or else SVB might have been more cautious about their interest rate exposure. Gross example of what happens with the no regulation mentality they have.

All this media reporting makes people think the investors at SVB could lose nearly everything, which increases the potential for a run on other banks. Hopefully on Monday the FDIC makes it clearer how bad this is NOT, though if they say they'll lose 10% that could spook some people too.

"The Republicans dropped bank mark to market rules for the smaller banks like SVB back iin 2018 or else SVB might have been more cautious about their interest rate exposure. Gross example of what happens with the no regulation mentality they have."

Friendly reminder that Bill Clinton signed Gramm–Leach–Bliley Act into law. Don't blame this situation on Republicans. BOTH PARTIES care more about bankers and Wall St. than they do about ordinary workers. Because it is bankers and Wall St. who give them the kind of campaign contributions that are necessary to win political seats.

"Investors implore the government to step in after Silicon Valley Bank failure" Web Link

"“This was a hysteria-induced bank run caused by VCs,” Ryan Falvey, a fintech investor at Restive Ventures, told CNBC on Friday. “This is going to go down as one of the ultimate cases of an industry cutting its nose off to spite its face.”

Observers are calling out the irony as some VCs with notoriously libertarian free-market attitudes are are now calling for a bailout. For instance, reactions to Sacks’ tweet included statements like “Excuse me, sir. Suddenly the government is the answer?!?” and “We capitalists want socialism!”"

Banks have far too much power in this country, and not enough oversight. Reminder: Obama bailed out the banks while ordinary Americans lost their homes and life savings.

Bailing out SVB WITHOUT PUTTING SERIOUS STRINGS on the deal would be like spitting in the eye of everyone who was MASSIVELY harmed in 2008. It would make clear that bankers are the first class citizens in this country, and everyone else is just a schmuck.

The situation was very different back in 2008, due to the failure of AIG and the unique role it played at that time. We were facing the potential collapse of the entire banking industry when AIG's "insurance" became worthless. Not so with SVB.

Just an Observation,

The unreported issues are what is going on with any loans or mortgagees this bank was dealing with? These are going to vanish and they are going to have to be negotiated again with another bank. BUT , those banks are NOT going to loan out 100% of the existing loans, typically they may loan at 80% of the values. And at the same time the interest rates will have to be in the current market. So if a mortgage or loan was made at 2020 rates, the new ones will be todays rate.

That means either you make a 20% down payment and pay higher costs, or the new loan owner will simply be entitled to take whatever the loan is paying for. FDIC has no contingency on this. And any lender dealing with any increased risk loans has a CALLABLE Provision in the contract so that for any reason, the bank can just say, goodbye and seize the collateral of the loans or mortgages.

That means if it is an Intellectual Property that is funded, that company can lose its PATENTS or TRADE SECRET, which is the foundation of the valley economy. Boy this situation is simply not even close to being over yet.

I'm betting that Bank of America buys the assets on Monday. Failing that could be Morgan Stanley Chase, Wells Fargo, or Citibank. One of the big guys will snap up all those deposits and all will be well.

But Dodd-Frank would have prevented this had Trump (hardly even a Republican) and Kevin McCarty (hardly even a person) had not worked to roll back what Dodd-Frank created in certain areas of reporting and transparency.