[HN Gopher] SVB collapse: Peter Thiel's role scrutinized as spar...
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SVB collapse: Peter Thiel's role scrutinized as spark of bank run
Author : MilnerRoute
Score : 170 points
Date : 2023-03-13 20:10 UTC (2 hours ago)
(HTM) web link (www.washingtonexaminer.com)
(TXT) w3m dump (www.washingtonexaminer.com)
| rafaelturk wrote:
| Blame the messenger. Media is going crazy about this with no
| fundamentals at all. SVB was already doomed at least a year ago
| when they bought HTM assets.
| eli wrote:
| Passive voice in a headline is always a red flag. His role "was
| scrutinized" by..."journalists and critics." That's true, but
| it's not news.
| throwaway81523 wrote:
| I leave it to others to judge the validity, but I found Brad
| DeLong's epithet for Thiel amusing
| (https://braddelong.substack.com/p/saturday-night-thoughts-
| on...):
|
| > Even so, SVB knew it had gotten itself into trouble--that it
| had put too large a share of its assets into long-term Treasuries
| that it intended to hold-to-maturity, and that while it was
| notionally hedged against interest-rate duration risk by this
| hold-to-maturity strategy, that strategy put those assets outside
| the circle of those available to meet unexpected withdrawals, and
| so caused liquidity problems. SVB was, I am told by sources who
| really should know, because they talked to people talking to
| people doing the deal, that SVB came within twenty minutes of
| getting enough additional cash to fix likely problems.
|
| > Then chaos monkey Peter Thiel showed up: advising companies to
| pull their money out of SVB.
| mhb wrote:
| > notionally hedged against interest-rate duration risk
|
| WTF does that mean?
| ALittleLight wrote:
| I think it's fair to think of "notionally" as "not actually".
| hguant wrote:
| Breaking down the full context of the sentence makes it
| easier to parse
|
| >notionally hedged against
|
| on paper, SVB had protection from...
|
| >...interest-rate duration risk
|
| the danger that rising interest rates would mean it lost
| money on long term bonds at the historic (low) rate...
|
| >...by this hold-to-maturity strategy,
|
| using a common financial technique that valued the assets in
| question at their final value, not their current market
| value...
|
| >that strategy put those assets outside the circle of those
| available to meet unexpected withdrawals
|
| however, doing so meant those bonds weren't available if they
| needed immediate cash
| seabass-labrax wrote:
| Excellent explanation; I think understand the whole
| situation better thanks to you.
| 1adam1200 wrote:
| Getting a little more specific, notionally hedged means
| that Assets (the banks investments, originated loans) >
| Liabilities (deposits). But as you said, on paper.
| grumple wrote:
| It means that your bonds having a low interest rate is only a
| problem if you plan on selling the bonds instead of holding
| them until maturity.
| jojobas wrote:
| No? If you hold a 1.5% bond to maturity when the cash rate
| is 4.5% and projected to rise further you lose money in a
| very literal sense. Also they had to sell some at loss to
| just keep going before any gossip of trouble.
| SoftTalker wrote:
| You lose earnings. You don't lose the stake. But when you
| are forced to sell early, you do lose the stake.
| dragontamer wrote:
| The 30Y bond was "declared" to be held-to-maturity, meaning
| you didn't have to book the paper-losses from the Fed
| Interest rate hikes / change in interest rates over the past
| year.
|
| But of course, that ended up not being true, now was it? So
| it was only 'notionally' hedged, not truly hedged.
| mhb wrote:
| Right, if hedging isn't necessary for those bonds then I
| guess one way of saying it is that they're "notionally
| hedged". Another is that they weren't hedged.
| dragontamer wrote:
| Be that what it may, declaring some bonds to be "held to
| maturity" is common practice in banking.
|
| However, for _these_ bonds, and so much of it, to be
| declared "held to maturity" is a mistake. There's always
| wiggleroom in how accountants add up the numbers. They
| messed up on this part.
| Scubabear68 wrote:
| Hoping interest rates won't go up is hardly "notionally
| hedged".
| alfalfasprout wrote:
| Coming within 20 minutes is "too little too late".
| bigtex88 wrote:
| Insightful writing but that man needs an editor in a bad way.
| dhbanes wrote:
| What do Peter Thiel's political party and contribution activity
| have to do with Silicon Valley Bank's solvency?
| coldtea wrote:
| [flagged]
| phlakaton wrote:
| ...You're missing a /s, right?
| coldtea wrote:
| yes
| hnrodey wrote:
| What does it mean "he is on the wrong side of politics"?
| shrimpx wrote:
| Trumpist and anti-democracy "exit libertarian" terrified by
| "unthinking demos" aka voters.
|
| > "the great task for libertarians is to find an escape
| from politics in all its forms--from the totalitarian and
| fundamentalist catastrophes to the unthinking demos that
| guides so-called 'social democracy.'" -- Thiel
| vanjajaja1 wrote:
| Thiel is a libertarian and he has recently earned the label
| of "someone who talks to someone who is connected to
| someone who has the label Nazi". That makes him
| colloquially "on the wrong side of politics"
|
| https://www.splcenter.org/hatewatch/2021/03/18/white-
| nationa...
|
| https://www.nytimes.com/2021/09/21/books/review/the-
| contrari...
| throitallaway wrote:
| I took GP's comment as sarcasm.
| kurthr wrote:
| Good question.
|
| Who eased the Banking Regulation limits from $50B to $250B,
| allowing SVB to take Billions during the pandemic and invest
| them in low interest MBS without hedging them appropriately?
|
| https://www.reuters.com/article/us-usa-trump-dodd-frank/trum...
|
| Is that a friend of Peter Thiel? Someone he's been a vocal
| political and financial supporter for?
| brightlancer wrote:
| Trump signed a bill passed by both houses of Congress; so the
| "who" is Trump, roughly 51 senators and roughly 213
| representatives.
|
| It's not like Thiel called up Trump and they made this happen
| over lunch.
| opportune wrote:
| I have many reasons to dislike Thiel but being first in line
| for a bank run is not one of them.
|
| SVB would likely have had a run eventually given that the
| increased withdrawal/desposit ratios of a cooling VC market
| would have eventually forced them to lower interest on customer
| deposits very low compared to other banks (because they had a
| lot of underperforming assets in their books in their HTM
| portfolio), at which point a lot of deposits would have been
| moved elsewhere naturally, forcing the sale of non-HTM
| securities and probably eventually forcing the sale of HTM
| securities at a loss (triggering insolvency).
| frellus wrote:
| When a building is on fire, no one is going to (nor should they)
| blame you for trying to get to the exit.
|
| Did Peter Thiel cause the bank to fail? No, their mis-management
| did.
|
| Did Peter Thiel try to safeguard his companies' bank positions?
| Yes, so they can make payroll and operate.
|
| Who are these people to throw blame, when the building's still
| smoldering ashes and the smoke hasn't cleared. Maybe he called
| the CEO and got bad messages. Maybe no one talked to him, so he
| said, "F it, pull out". No one yet knows all the factors which
| caused the failure, but let's start with the company itself, not
| its customers.
| twblalock wrote:
| > Did Peter Thiel try to safeguard his companies' bank
| positions? Yes, so they can make payroll and operate.
|
| Seriously, if I was a CEO trying to make payroll right now and
| I found out a board member knew my bank was screwed and didn't
| try to help me, I'd be working on a lawsuit.
|
| Thiel did his duty as a board member and investor. He should
| not be blamed for acting rationally. The bank should be blamed
| for making a run the only rational choice.
| a_c wrote:
| I wonder if Peter had shorted SVB
| adventured wrote:
| Hopefully.
| dxhdr wrote:
| I wonder if the SVB CEO sold shares 2 weeks ago
| twblalock wrote:
| What would you do if you were a board member of multiple
| companies and you found out their bank was financially unsound
| and couldn't do normal bank stuff?
|
| Would you say nothing and hope nobody else notices? Good luck
| with that. That just means your companies get screwed.
|
| What if you get away with being silent, nobody else noticed, and
| the bank gets bigger and fails even more spectacularly later in
| the year? Wouldn't that be worse? Wouldn't you then be criticized
| for not speaking up when you knew about the problem?
|
| Would you try to band together with other investors to save the
| bank? Worth a try, but that means you have to tell other people
| there is a problem and trust that not a single one of them would
| start a bank run.
|
| A lot of people have an axe to grind against Peter Thiel but in
| this case he did the only rational thing. If he had done anything
| else he would have been blamed too, because some people just
| don't like him. I haven't seen anyone demonstrate a reasonable
| alternative for how a rational person would act, knowing what he
| knew at the time.
| schmichael wrote:
| > What would you do if you were a board member of multiple
| companies and you found out their bank was financially unsound
| and couldn't do normal bank stuff?
|
| Was there any evidence that they couldn't do "normal bank
| stuff"? AFAIK SVB still had ample avenues to raise liquidity
| before the bank run Thiel orchestrated. SVB's _stock_ would
| have suffered immensely, but their operations and deposits
| would have been fine as far as I can tell.
| twblalock wrote:
| > Was there any evidence that they couldn't do "normal bank
| stuff"?
|
| His fund had problems transferring money and that's why he
| noticed something was wrong.
|
| Someone else would have had similar problems, and would have
| noticed, even if Thiel didn't act.
| kelnos wrote:
| Do you have more information on this? From what I
| understand, SVB had more than enough cash (yes, cash) on
| hand to handle any money transfer Thiel's fund could have
| thrown at it.
| twblalock wrote:
| Here is one of them from Friday:
| https://news.yahoo.com/thiel-founders-fund-withdrew-
| millions...
|
| > On Thursday, as the bank was beginning to unravel, the
| firm started what's known as a capital call. That's a
| run-of-the-mill activity in the venture capital world, in
| which a VC firm asks its investors, or limited partners,
| to send it money in order to make investments in startups
| -- the core function of most VC firms. It began by asking
| those backers to transfer the funds to accounts at SVB,
| as it has done for years, the person said.
|
| > But the firm learned that its limited partners were
| encountering issues using SVB services as they tried to
| transfer the funds -- they weren't immediately going
| through as expected, the person said.
| cjtrowbridge wrote:
| SVB was never "unsound." They had plenty of assets to cover all
| their deposits and plenty of cash to cover normal withdrawals.
| If not for people like Peter calling for a bank run, SVB would
| still be in business today.
| kelnos wrote:
| > _They had plenty of assets to cover all their deposits_
|
| No, they did not. If they did, then they could have
| immediately sold all their assets during this bank run, and
| there would have been no need for the FDIC to step in.
|
| If they could not do that, then, by definition, they did not
| have enough assets to cover all deposits.
| caddemon wrote:
| Today maybe, but a year or two from now? They had 40% of
| deposits locked in for years at a low interest rate. They
| wouldn't have been able to offer depositors a competitive
| interest rate over the next couple years without bleeding
| money. So they'd have to hope that few would withdraw in
| spite of an objectively inferior service (which in itself
| would start raising alarm bells at some point).
|
| Maybe a more gradual stream of withdrawals would've allowed
| them to make up money elsewhere to stay alive, but they
| demonstrated such horrible incompetence with this entire
| situation that I don't see that ending well.
| twblalock wrote:
| Nope, someone else would have started a run.
| chii wrote:
| As long as Peter Thiel had nothing to gain by starting a bank
| run (which, by all logic, seems likely), then he cannot be
| blamed for talking about the bank's risk and position which
| ultimately caused a run.
| heisenbit wrote:
| The washingtonexaminer is not known for its fair and balance
| reporting.
| UncleOxidant wrote:
| This is what's odd here. TWE is a conservative outlet that
| you'd think would align with Thiel. Possibly this reflects the
| fault lines that are developing on the right?
| [deleted]
| kurthr wrote:
| How about Reuters?
|
| https://www.reuters.com/article/us-usa-trump-dodd-frank/trum...
| motohagiography wrote:
| Theil will probably appreciate that his crime was that he was the
| first to stop clapping.
|
| This narrative was taking form over the weekend, and it's
| intended to edge him out of funding or participating in the '24
| election. It doesn't need to be true, it just has to stick.
| kmac_ wrote:
| Blaming somebody for saving his money?
| SaintGhurka wrote:
| This ignores the voices crying in the wilderness for months about
| dangers at the bank.
|
| "The risk for $SIVB is that deposit outflows accelerate at such a
| pace that it is forced to either raise equity capital and/or sell
| down its HTM securities portfolio, thus realizing substantial
| losses. You can bet that $SIVB is praying for a Fed pivot!"
|
| https://twitter.com/RagingVentures/status/161582608803847373...
| Etheryte wrote:
| You can pick any topic, any industry or any company and you'll
| find someone on the internet calling the doomsday clock on it.
| Identifying who was right after the fact is not useful, just
| like how saying the lottery numbers after they've already been
| broadcast is not useful.
| jeromegv wrote:
| > Identifying who was right after the fact is not useful
|
| Why not? It shows who was actually looking at the numbers and
| who was not buying on the popular narrative. This is a public
| company, now looking back, there are a lot of warning signs.
| Turns out that even a lot of professionals DID know and told
| us about those warning signs.
|
| Nothing to do with being lucky and no comparison whatsoever
| with the lottery numbers, they based their assessment on
| public information available to all of us, not randomly
| guessing that one day SVB might fail.
| smcl wrote:
| That's true to some extent - I could spin up a few hundred
| accounts predicting something specific happen on a specific
| date for the next couple of years (a Russian surrender, Boris
| Johnson sex scandal, whatever) and claim that I'm Nostradamus
| when one of them hits gold. But it seems like this account
| accurately predicted not only that it _would_ happen but also
| predicted the manner that it would happen, and explained in
| detail why it would happen. That feels a bit more
| substantial.
| bigtex88 wrote:
| If they had evidence for it at the time then why wouldn't it
| be useful to identify them after the fact?
|
| I see the point you're trying to make. Conspiracy theorists
| should be treated as broken clocks. If people have evidence
| but are simply being ignored then I think it's wise to listen
| to those people.
| sonotathrowaway wrote:
| This makes no sense at all.
|
| You're saying that we should ignore detailed analysis that
| correctly diagnoses issues - for no reason at all?
| adventured wrote:
| They're claiming quite broadly that reality is unknowable,
| ultimately. That's where you end up if you follow their
| premise. Nobody can know anything with certainty, in other
| words.
| jsnk wrote:
| There are probably thousands of VCs and even more startups who
| had accounts with SVB. You are telling me, Peter Thiel saw this
| before anyone else did?
|
| This indictment only shows how good Peter Thiel is at his job.
| ratsmack wrote:
| Everyone saw the same quarterly report saying that they (SVB)
| took a $1.8b hit and needed to raise capital via a stock
| offering. Peter Thiel decided to move his funds elsewhere. Does
| that make him the bad guy?
| boc wrote:
| It's objectively hilarious that the top VCs put on their "banking
| expert" hats and misdiagnosed SVB's public statements so badly
| that they created a run on their own bank.
|
| Let's be honest, very few of the VCs calling their founders
| telling them to pull their accounts had any clue about what
| "held-to-maturity" vs "available for sell" meant in the context
| of SVB's investment portfolio, or had any real knowledge about
| what the actual issue was within the bank. They were just hearing
| rumors/reading tweets that the bank was going to collapse and
| taking it at face value without any diligence.
|
| They made the calls, retweeted the tweets, and then read the
| explainers on substack the following day to figure out what was
| actually happening. It was pure herd panic behavior and should
| make a great case study some day.
| ecf wrote:
| Can't wait for the day there isn't this hive mind surrounding
| VCs and the tech elite at large. Bank runs, mass layoffs, etc.
| All of them are just copying what others are doing.
| jjulius wrote:
| >It's objectively hilarious that the top VCs put on their
| "banking expert" hats and misdiagnosed SVB's public statements
| so badly that they created a run on their own bank.
|
| I appreciated another comment that shared the same sentiment,
| but said something along the lines of, "Tech companies DDOS'd
| their own bank".
| stickfigure wrote:
| This is a classic prisoner's dilemma and has been studied to
| death already. Pulling your money out is rational behavior as
| soon as there is any risk that you won't be able to in the
| future - yes, even if that behavior is what causes it.
|
| The subtext of your comment is that it would have been smarter
| to leave money in the bank. That's not how the world works.
|
| There's an interesting discussion around how social
| institutions can coordinate mutual non-defection (hint: it
| probably looks a lot like the recently announced "government
| guarantees deposits"). But "lol dumb VCs" just shows lack of
| understanding.
| gmd63 wrote:
| Explain how burning the system your community depends on to
| the ground when it wouldn't have burned otherwise is
| "rational"
| rashkov wrote:
| Because there is no "community" in this situation, just
| individual actors in a life and death situation, running
| for the exits
| myhf wrote:
| It may be rational to withdraw money from the bank (which
| raises risk for everyone), but it would be superrational [1]
| to buy 10-year bonds from the bank (which lowers risk for
| everyone). Yes it is dumb for VCs to not understand this
| basic principle.
|
| [1] https://en.wikipedia.org/wiki/Superrationality
| stickfigure wrote:
| This little round of prisoner's dilemma had thousands of
| participants. It would be irrational to assume all the
| other players are superrational.
| twblalock wrote:
| > Let's be honest, very few of the VCs calling their founders
| telling them to pull their accounts had any clue about what
| "held-to-maturity" vs "available for sell" meant in the context
| of SVB's investment portfolio
|
| Uh, the fact that they knew what it meant was why they freaked
| out. They knew the bank was not liquid.
|
| Plus you don't need to be a finance professor to know that if a
| bank is having trouble doing normal bank stuff like processing
| transactions, something is wrong. And a lot of people were
| going to notice that in the next few days. If it wasn't Thiel
| it would have been someone else the next day realizing that the
| bank was screwed.
|
| Don't blame people for starting a bank run. Blame the bank for
| making a run the rational thing to do for anyone who cares
| about their money.
| zippergz wrote:
| No bank is infinitely liquid. Processing transactions at the
| volume that happened during the run is the opposite of
| "normal bank stuff." Neither of those points make any sense,
| and they reinforce the point the original poster was making.
| If you think that a bank is in trouble because they can't
| handle a huge percentage of their depositors pulling out
| their money, you don't understand how banks work.
| twblalock wrote:
| The bank was having trouble processing routine transactions
| for Thiel's fund. That is definitely normal bank stuff. The
| bank was illiquid to the extent that it was impacting day
| to day operations.
| swatcoder wrote:
| It's fun to call elite people foolish and sometimes they are,
| but your picture of what was going on at SVB is not accurate.
|
| SVB was not _guaranteed_ to collapse, but their marginal
| solvency relied on depositor behavior that was _already_
| changing. They had complementary problems on both sides of the
| business and were getting squeezed by it. Nobody can know how
| long they would have lasted without last week's run, but things
| were looking dicey and they easily could have failed to satisfy
| withdrawals even if there was no public knowledge of their
| situation. The publicity and run just resolved the genuine
| underlying tension that was already there.
| dpweb wrote:
| HOW do you have hundreds of portfolio companies with uninsured
| millions in a bank. Please can some venture capital expert
| explain? Tell me it's not just hubris.
| r3trohack3r wrote:
| Can't speak for everyone. But a train of thought I've heard
| from founders for years (when I've suggested moving their
| huge pile of investment money into something other than a
| bank account) goes something like this:
|
| We are not a portfolio management company. We aren't here to
| manage investments, we are here to build something of value:
| our startup. The money that is invested in us is best spent
| on _us_. They view us as a good investment, and we view
| ourselves as the best possible return on our time and money.
| We are all on in our venture and our outcome is either 0 or
| 1, we are going to be the 1, so every dollar we get is best
| invested in ourselves and not [X]. No other investment will
| yield the same return as our outcome if the promises we've
| made to ourselves and our investors hold true.
|
| So they park their money in a bank account, use that to
| calculate runway, and treat that runway as an ongoing
| investment in their startup. The bank losing their runway
| wasn't really a substantial risk compared to the other
| existential risks a startup faces on a daily basis - at least
| not until last week.
| kaitrain87 wrote:
| My understanding is that when people refer to deposits being
| insured in America they are nearly always referring to the
| FIDC insuring $250k on deposits (not for values greater than
| that amount, and not for stocks etc).
|
| Is it common practice for other banks to insure deposits more
| than what SVB? I keep hearing the 'how could they not have
| insured X% of their accounts'. That question adds to the
| hysteria if most banks wouldn't hold insurance if they had
| those clients. There isn't a lot of reporting separating
| whether SVB was underinsured or whether the only difference
| is that other banks have a lot of individual depositors vs
| catering for businesses.
| caycep wrote:
| Might be a basic question from a STEM nerd with not a lot of
| finance background, but what are "insured" millions held in?
| Special class of corporate accounts?
| rashkov wrote:
| Sweep accounts, is one answer I've seen floating around
| selectodude wrote:
| The bank (every single bank) pays the FDIC a fee on every
| insured bank account. The FDIC puts all that money into a
| bucket and pays out from it whenever a bank fails. They
| also have a line of credit with the Federal Reserve that
| they can draw on if the bucket isn't large enough.
|
| So the FDIC pays out everybody up to $250k, closes the
| bank, liquidates the assets, and then pays out the balances
| above $250k until they run out of money.
| [deleted]
| [deleted]
| machina_ex_deus wrote:
| Why wouldn't they? What's the worst case scenario? SVB blows
| up, the Fed halts hiking rates because of the fear they
| injected to the financial system, and they finally see the
| light at the end of the tunnel of rate hikes, because their
| entire grift is based on 0% interest rates. Sounds like a win-
| win to me.
| r3trohack3r wrote:
| "Don't withdraw your money or you stand to lose all of the non-
| FDIC insured money you don't withdraw" is an absurd stance. If
| tomorrow I realized that, if I were too late to the withdraw
| party my account would turn into a $250k IOU from the FDIC, I'd
| absolutely move my money to another account.
|
| The bank was belly up - placing the blame on the people who
| expected their bank accounts to be liquid doesn't seem like the
| correct take. When you put your money in a bank, you expect to
| be able to pull that money out at any time for any reason. One
| of those reasons is suspecting the bank is incapable of
| surviving you withdrawing your money.
| drited wrote:
| Why do you say misdiagnosed in light of the scale of unrealised
| losses at SVB vs its equity?
| Aperocky wrote:
| > misdiagnosed SVB's public statements
|
| What's misdiagnosed? That SVB is holding half its assets in
| 1.5% long term HTM bonds in a 4.5% interest rate environment?
| claytonjy wrote:
| That should only be a concern for investors, not depositors.
| The HTM lockup is only a concern for depositors if they all
| start trying to withdraw at once...which is exactly what
| happened due to the VC-fueled panic.
| vkou wrote:
| The depositors _were_ all trying to withdraw all at once,
| because the depositors were startups that are spending
| money, but aren 't getting any new funding injections or
| revenue.
|
| That normal behavior triggered the insolvency.
| KaiserPro wrote:
| > That normal behavior triggered the insolvency.
|
| Its not normal to have 42 billion withdraw in a day,
| _net_. That 's 20% of total assets. If your hypothesis is
| correct, then all of the companies using SVB would have
| spend _all_ their money in just over a business week.
| vkou wrote:
| They were insolvent before that 42 billion was withdrawn.
| The bank run only started after they announced their
| insolvency.
|
| SVB sold all of its liquid securities to finance regular
| customer withdrawals, and came up short. It announced
| that it's going to be borrowing money, selling more
| shares, and that it's going to mark down it's long-term
| assets.
|
| The bank run started _after_ that announcement.
| KaiserPro wrote:
| If they were insolvent before the 42 billion was
| withdrawn, how did the people withdraw the 42 billion?
| [deleted]
| _rm wrote:
| I like to imagine it going down like Margin Call, with Thiel at
| the head of the table "this is, ur ur, this is, ur ur, it". Maybe
| with an "overdetermined" thrown in there.
|
| If anyone hasn't seen Margin Call, give it a watch. Fantastic
| movie.
| s1gnp0st wrote:
| Yelling fire when there is in fact a fire is not a crime. What is
| this?
| onlyrealcuzzo wrote:
| This seems more like blowing on a tiny ember and yelling fire
| at the same time.
| throitallaway wrote:
| Just like Zhao blew on a tiny ember at FTX.
| onlyrealcuzzo wrote:
| No. Nice try. Cute. But not at all.
|
| 1) FTX held assets, not deposits that are understood to be
| fractional reserve.
|
| 2) FTX used the majority of those assets to buy bullshit.
|
| 3) The bullshit dropped in value by 80% (before Zhao yelled
| fire).
|
| 4) Everyone who gave FTX any money lost almost everything,
| on top of the equity investors getting wiped out
| completely.
|
| 5) SVB had something like 20% of assets held in long-term
| treasuries that "only" lost 25% of value - in a world where
| it's understood this is how things work and there's
| regulations in place and, even still, no depositor is
| losing money...
| gnicholas wrote:
| What about forcefully yelling fire inches away from a minuscule
| fire, thus literally fanning the flames and putting it on the
| path to becoming a bonfire?
| JamesBarney wrote:
| Bank runs are self-fulfilling prophecies. So it's not a crime,
| but it very possibly could be the cause.
| _dain_ wrote:
| so let's get this straight: VCs/startups are bad because they
| didn't scrutinize the bank's finances before putting money in it
| (how many businesses actually do this for their bank?). and they
| were somehow supposed to know that the bank was dodgy months or
| years before it actually became dodgy.
|
| and they're also bad because one VC looked into the bank's
| finances, noticed a real problem, told people about it, and those
| people did the rational thing and pulled their money out.
| rmilk wrote:
| Managing that risk is what the customer CFOs were supposed to
| do. Your average retiree or semi wealthy person knows the FDIC
| limits and manages their portfolio around them.
|
| This is not a new risk for businesses in any industry and
| financial services exist to help manage that risk for companies
| with cash on hand.
|
| I would instead ask why the SVB customers didn't manage this
| risk. Others on HN said that banking with SVB was a requirement
| placed by many VC companies, which does tie the customer's
| hands.
| analog31 wrote:
| Ask HN: Is there an easy way to know a bank's level of insured vs
| un-insured deposits?
| MilnerRoute wrote:
| It's in their bank filings, so reporters can and do dig it up.
| For SVB, it was 96% uninsured
|
| https://www.semafor.com/article/03/11/2023/hedge-funds-offer...
| theklub wrote:
| To add to that, does it matter? The government is backing all
| deposits so does that mean bank runs are a thing of the past
| now?
| cjhanks wrote:
| The bank was nearly fully capitalized with low risk
| investments. Everyone would have gotten their money back
| _anyways_ , it would have just taken 5-10 years.
|
| Imagine what would happen if startups could not access their
| capital? By the time funds were available for withdrawal, the
| businesses would be dead. The regulators then have to track
| every funder to every dollar to return money. It would take a
| decade for this to happen.
| rmilk wrote:
| At the same time, these startups all had a CFO whose job
| was to manage that financial risk. What if they had a late
| payment from customers or a supply chain delay, or were
| simply locked out of their accounts due to a cyber event or
| unavailability of a key employee? Did they have any
| contingencies like line of credit or instruments outside
| SVB? They took other risk reductions like insuring their
| office space, etc.
|
| In addition every offering and statement from SVB shows
| >$250k is not insured but they treated it like nothing bad
| could ever happen there. Even your average retiree knows
| their life savings in a bank is only covered to FDIC
| limits.
|
| This risk for businesses with cash is not new. Financial
| services like sweep accounts, negotiable instruments, etc.
| existed for decades. Is it just that SV entrepreneurs are
| too smart or not smart enough to manage these risks? Or was
| it the VC firms that forced their hand by requiring them to
| bank at SVB (noted as a VC funding requirement by others on
| HN).
|
| The companies can sell their invoices or ownership of their
| deposits on the market, or use it as collateral for
| recovery. The CFOs job was to manage financial risk. They
| failed at this and their companies are at risk because of
| it. The FDIC takeover means they have unfettered access to
| at least $250K as of today, so it's not quite as bad. And
| the FDIC will unwind SVB's current assets through their
| insurance trust or by finding a buyer. The SVB stock and
| bond holders will lose, the depositors will lose much less.
|
| But it makes you wonder how long the C-suite knew this
| liquidity issue given they had no risk manager for most of
| last year (also noted in other HN articles).
| lxgr wrote:
| Getting your money back in 5 years at current rates means
| getting back 80 cents on the dollar.
| chungleong wrote:
| Blaming one man for the rottened culture of an entire industry.
| The people who made the decision to withdraw money from SVB are
| supposed to be sophisticated. They're certainly well compensated.
| Yet they acted like bunch of illiterate peasants. The whole
| episode really demonstrated the disappearance of critical
| thinking from the American tech industry. This primitive monkey-
| see monkey-do mindset has come to dominate just about every
| aspect of it.
| ahtihn wrote:
| > Yet they acted like bunch of illiterate peasants.
|
| Anyone who withdrew their money was acting rationally.
|
| There is 0 upside to leaving your money in a bank that is at
| risk of experiencing a bank run.
| sebzim4500 wrote:
| In what sense did they act like illiterate peasants? Trying to
| withdraw funds was the only rational act, as soon as the run
| started. What possible upside do you have for leaving all your
| money at risk?
| bink wrote:
| Isn't that kinda like blaming the crowd when someone yells
| "fire!" in a crowded theater? I don't know how much influence
| Thiel had in this particular failure, but I don't think it's
| appropriate to completely absolve those that triggered the
| start of the bank run from blame.
| sebzim4500 wrote:
| Especially since in the case the theatre was on fire, at
| least a little bit.
| slt2021 wrote:
| if it was your money at SVB on the line - with two or three
| commas - you would think differently.
|
| Or to put it differently - if you were the person to manage
| money with couple commas, you would have done the same.
|
| It is classic prisoner's dilemma. The more there are
| participants - the less likelihood that everyone will act in a
| coordinated manner for common benefit. Two persons maybe can
| call each other and agree, but hundreds/thousands? unlikely
| bcrosby95 wrote:
| A prisoner's dilemma where prisoners are allowed to talk to
| each other isn't much of a prisoner's dilemma.
| slt2021 wrote:
| it is still prisoner's dilemma, because the fact that you
| talk is not binding. Anyone can agree on the phone and pull
| money immediately after call "just to be safe"
|
| talking - means you can lock out everyone in one room and
| let them collude. This is not the case here, because the
| list of depositors at SVB is not public and it takes only a
| few people to start chain reaction of withdrawals
| ignoramous wrote:
| All good, but there's no denying that SV is a meme machine.
| prpl wrote:
| I mean, Peter Thiel has undeniably shaped startup culture for
| the last two decades, in particular 2008-2014 or so.
| AYBABTME wrote:
| One of the first quotes of this article points to Dave Troy's
| "research" which as far as I can tell is lizard-theory without
| the lizards. A catchy tweet concludes it in
| https://twitter.com/davetroy/status/1634871362744651776?s=20 but
| the thread is some sort of "don't read what they say, their
| actual secret motive is XYZ and to overthrow the government!".
| dools wrote:
| Dave Troy is very well researched, and is totally on the money
| in almost everything he says. Lumping him in with right wing
| conspiracy theorists is a mistake.
| afarrell wrote:
| It is possible for a normally-reasonable person to have a
| moment of panic and say something foolish.
| tdaltonc wrote:
| Which snowflake started the avalanche?
| [deleted]
| jacquesm wrote:
| Maybe Peter Thiel can join Elon Musk as co-founder of their Mars
| colony?
| wolverine876 wrote:
| 'People of Earth, this is Starship Captain Elon Musk and as you
| can see in the video feed, I have set foot on Mars!'
|
| ...
|
| 'Hello?'
|
| 'Earth? Are you receiving this?'
| marvel_boy wrote:
| Some context: "According to @FastCompany, it was Republican
| billionaire Peter Thiel who started the #SVB withdrawal frenzy,
| with little basis. Then it snowballed."
|
| Meanwhile Sacks was crying for an "intervention". Pathetic.
| brightball wrote:
| I read earlier today that Thiel and many other people actually
| took action after reading a reputable newsletter called The
| Diff.
| gooseus wrote:
| I'm not much of conspiracy theorist even though it's super easy
| to be one these days, but it's not hard to see the obvious ways
| in which Thiel and his political associates would benefit from
| a financial collapse right now.
|
| Lots of MAGA people were yelling all weekend on Twitter trying
| to get #BankRun and #BankCollapse trending along with any
| rumors of major institutions having issues with accounts.
| [deleted]
| ElijahLynn wrote:
| > That same day, Peter Thiel's Founder Fund advised companies
| in its portfolio to pull money from the bank, and a host of
| other venture funds followed suit.
|
| https://www.fastcompany.com/90864027/why-svb-failed-silicon-...
| nawgz wrote:
| Yes, the Fund which had had issues using the Bank recommended
| the Fund's Companies stop using the services of the
| struggling Bank.
|
| Seems to me like this is how business would be conducted, I'm
| not sure where I would look deeper to understand how this is
| nefarious?
| misssocrates wrote:
| Classic scapegoating. The problem was the bank, not a fund that
| was acting responsibly.
|
| > On Thursday, as the bank was beginning to unravel, the firm
| started what's known as a capital call. That's a run-of-the-mill
| activity in the venture capital world, in which a VC firm asks
| its investors, or limited partners, to send it money in order to
| make investments in startups -- the core function of most VC
| firms. It began by asking those backers to transfer the funds to
| accounts at SVB, as it has done for years, the person said.
|
| > But the firm learned that its limited partners were
| encountering issues using SVB services as they tried to transfer
| the funds -- they weren't immediately going through as expected,
| the person said.
|
| > Quickly, Founders Fund asked its investors to transfer the
| money to other banks instead. The fund acted to ensure that
| startup funding deals that were slated to close in the coming
| days were not delayed, the person said.
|
| https://www.bloomberg.com/news/articles/2023-03-11/thiel-s-f...
| expazl wrote:
| > a fund that was acting responsibly
|
| You have to consider how these actions will affect the future
| relationships between banks and both the specific actors but
| also the startup scene in general. Startups already had a
| difficult time with traditional banking which is a large factor
| in why SVB was so successful, because it catered to the market
| specifically. What bank is now going to look at a startup not
| be thinking "Do we really want to take on a group of people who
| will collectively launch a bankrun at the slightest sign of
| trouble, even if we are geared to handle a bank run?", A run on
| the bank is never good news, even if the bank stays liquid, and
| it has a ton of knock-on effects and causes a huge number of
| headaches for the bank.
|
| In this situation, where you think there might be a bank run
| and you have a coordinating role with a large number of
| customers. I think the responsible thing to do would have been
| to reach out to the bank and talk through all the options that
| will let everyone stay whole without a bankrun, not to fire up
| a group chat and scream "The bank is burning to the ground!".
| It seemed very likely that without the panic SVB could have
| secured liquidity and then the long term investments would not
| have posed a risk. I'm not saying their position was optimal or
| even good, but the panic just does not look to be the best
| option for the customers nor the most responsible action for
| those who had major pull in the market.
| JumpinJack_Cash wrote:
| > > Startups already had a difficult time with traditional
| banking
|
| I have seen this statement a half-dozen times in the last 3
| days.
|
| Can somebody explain in detail what are these hard times that
| a startup faces at Wells Fargo, BoA, JPMChase etc?
|
| KYC? If Silicon Valley Bank was skipping that then they were
| against the law
|
| Wires being signaled as suspicious? I doubt it, maybe the
| startup is new but everybody knows who the Founder's Fund
| is... or Blackstone or CVC. When they send the big equity
| raise checks banks look at the recipient but also at the
| sender.
| kelnos wrote:
| * * *
| davidw wrote:
| Obviously none of this would have happened had the bank been in
| a stronger position. But a better outcome was perhaps possible
| if someone or a group had stepped up, rather than running for
| the exit as fast as possible.
| pcarolan wrote:
| The problem was the community (or lack of). This was *their*
| bank. These are the titans of Silicon Valley and they couldn't
| get together in a room and work it out. Instead everyone took
| to Twitter. To call it a prisoner's dilemma is a straw man
| because it implies they couldn't have picked up the phone and
| called each other. It was a failure to have a group of
| professionals with mutual interests work it out together. It
| was a failure that an adult didn't step up. There was a moment
| in which this could have been staved off, but the integrative
| fabric of the community wasn't strong enough to hold it
| together. I don't blame anyone individually, but I am taking
| the note from the postmortem to make sure I'm building closer
| ties to the people around me I depend on.
| pg_bot wrote:
| It's not a straw man to call this a prisoner's dilemma. The
| bank went from well respected institution to receivership in
| approximately 24 hours. 42 billion dollars worth of deposits
| was taken out of the bank. In the amount of time it would
| take to coordinate everyone (assuming they would even
| cooperate), someone else would've beaten you to the punch and
| removed their money. Every additional person that has made
| that decision puts you at risk of holding the bag. I do not
| fault any of the VCs who requested that their portfolio
| companies pull their money out. They saw the writing on the
| wall and were trying to protect themselves, the companies
| they invested in, and their LPs.
| jancsika wrote:
| Prisoner's Dilemma:
|
| Two members, A and B, are being driven around Silicon
| Valley and possesses every modern means of communication
| with each other. The bank holding their funds will
| collapse, but only if both of them send a globally
| accessible message advising everyone in the world to remove
| their funds from the bank.
|
| I've run some simulations in Python-- the best I can get is
| for one of the members to learn to refrain from resending
| the first member's global message 32% of the time. (But be
| careful with this-- once B accidentally escaped the
| simulation and shot out a tweet that caused a small ruckus
| for an investment bank in Omaha.)
| pcarolan wrote:
| You're assuming homogeneous agents. In other words, no
| leaders; no whales. The real world doesn't work like
| this.
| pcarolan wrote:
| It was a mismanaged crisis, I think on that point we agree.
| pg_bot wrote:
| In theory a restaurant that is over capacity and catches
| on fire should be able to have everyone exit without
| death or injury. In practice, people panic and act in
| their own self interest leading to disaster.
| pcarolan wrote:
| You also can't yell fire in a crowded theater when there
| isn't one. You could make the argument that someone did.
| pg_bot wrote:
| You totally can do that, it's not illegal! Schenck v.
| United States is a pretty odious court case I wouldn't
| want to be on the censor's side in that one.
|
| https://www.theatlantic.com/national/archive/2012/11/its-
| tim...
| wahern wrote:
| Except often enough in such a situation everyone does
| exit orderly. People are generally predisposed to
| cooperate; it's what makes us human. The situations where
| panic prevails are the _exception_.
|
| What's the saying... success has many fathers, but
| failure is an orphan?
| chii wrote:
| > everyone does exit orderly.
|
| this only happens when there's leadership present to
| which the rest get directed, and the crowd trusts the
| leadership to act with their interest in mind. E.g., a
| uniform wearing fire-warden, is often enough.
|
| If there's no such leadership, or they are acting
| (clearly) not in the interest of the "crowd", you will
| see panic and a failure to cooperate. This, not
| cooperation, is what makes humans truly humans.
| expazl wrote:
| It was a modified prisoners dilemma where 100 prisoners are
| faced with steal or share, and have every possible chance
| to communicate but just can change their choice after
| making it. And if just 20 had shared, then everyone wins,
| even those who chose steal. But the panic and the
| irresponsible VCs lack of communication with the bank and
| each other meant that in a heartbeat 85 prisoners had
| chosen steal, before even looking up at each other or
| listening to the rules being fully explained, and the
| remaining 15 where left perplexed that there wasn't even 5
| amongst the panicked bunch left to help resolve the
| situation calmly to everyones benefit.
| stickfigure wrote:
| You can allow as many phone calls as you want but with
| thousands of players, you're going to get _defect_ every
| single time you run the experiment.
|
| There's no "steal" here. It's your money, at a bank, and
| if you're late on the defect button you might not get it
| back. The rational action is always to defect.
| drited wrote:
| In your assertion here are you assuming that the bank was
| solvent and just had a liquidity problem, not a solvency
| problem?
| hypothesis wrote:
| > It was a failure to have a group of professionals with
| mutual interests work it out together.
|
| I saw plenty comments to the effect that maybe getting out
| first and leaving competition in the dust is also ok. For all
| we know someone could also have picked up a distressed bank,
| save feds stepping in forcefully.
| voisin wrote:
| > It was a failure to have a group of professionals with
| mutual interests work it out together. It was a failure that
| an adult didn't step up.
|
| What exactly do you think they should have done? The issue
| was that startups would need money in a less attractive
| environment (rising rates) and so it was just a matter of
| time before the mismatch between short term deposits and long
| term bond portfolio would clash.
| pcarolan wrote:
| The gap between assets and liabilities on thu/fri (as i
| understand it) was single digits. SVB tried to raise
| capital, but instead long-term customers pulled their
| deposits and told their portfolios to do the same. Some
| kind of restructuring and reassurances have prevented runs
| like this in the past and could have now. Maybe more will
| come out, but it felt like it was undone by lack of the
| kind of co-operation you often in local chambers of
| commerce and rotary clubs. These people were on first name
| basis with the board and president of the bank for a
| reason. Where were they?
| EGreg wrote:
| [flagged]
| korroziya wrote:
| >and they have not yet had a direct conversation
|
| Thank god.
| EGreg wrote:
| I always find 15:00-15:30 in that Kennedy speech I linked
| above chilling, because exactly what he warned everyone
| "above all" is exactly our systematic policy now, and
| anyone with a different idea is systematically brushed
| aside. Be it progressives or republicans in congress, or
| even the Pope himself.
|
| https://www.theguardian.com/us-
| news/2022/oct/25/democrats-jo...
| michaelmrose wrote:
| There is only one party at fault for Russia's unprovoked
| murderous attack on their neighbors and the slaughter and
| rape of its innocents. There is no communique that could
| have resolved this because Russia believed that it would
| quickly roll into Kiev and end it. They continue to believe
| that it will be in their interest to prevail as they
| believe they will long term. Negotiation is unlikely to
| change this analysis if the rotting corpses of its own dead
| isn't sufficiently persuasive.
| imjustforyou wrote:
| I would highly suggest you watch this informative lecture
| from an IR professor examining the causes of the current
| crisis in Ukraine (a lecture, mind you, given nearly a
| decade ago that accurately projected forward to now,
| perhaps the one mistake being that the lecturer did not
| expect Putin to attempt a full-scale invasion of
| Ukraine).
|
| https://www.youtube.com/watch?v=JrMiSQAGOS4
|
| The tl;dw: the West has pursued a policy since the end of
| the Cold War to march NATO and the EU to Russia's
| doorstep. Each time tangible actions or declarations have
| occurred, Russia has clearly expressed that it views this
| as an existential threat and that it will not tolerate
| NATO or the EU on its doorstep. We have ignored these
| warnings and continued this policy. Ultimately, it is not
| clear we have any good reason to be doing this for our
| own strategic interests, especially paired with the rise
| of China.
| selectodude wrote:
| And I'd highly suggest that you read Mearsheimer's more
| recent interview with The New Yorker where he reminds us
| that he's a complete fraud that shouldn't be spoken about
| anymore.
|
| https://www.newyorker.com/news/q-and-a/john-mearsheimer-
| on-p...
| brightlancer wrote:
| > Negotiation is unlikely to change this analysis if the
| rotting corpses of its own dead isn't sufficiently
| persuasive.
|
| So the only solution you leave us with is open war with a
| nuclear power.
|
| > There is no communique that could have resolved this
| because Russia believed that it would quickly roll into
| Kiev and end it.
|
| There is a common strain of thought that WWII was a "just
| war" and that nothing could have prevented war with Nazi
| Germany. This is correct if one starts history in 1938,
| or even 1933, but ignores the fifteen years between 1933
| and the end of World War I, and still the years of WWI
| and the decades prior.
|
| You are wrong in the same way that folks err that WWII
| was unavoidable. History exists and we didn't arrive at
| this moment simply because of the evil of one man.
|
| If we want to avoid an open war with a nuclear power, we
| have to be willing to negotiate. Putin is rational and
| has negotiated in the past. How many corpses do you want?
| EGreg wrote:
| Sure this could have been prevented, and resolved, in
| many different ways.
|
| 1. The most straightforward way would be for Russia and
| Ukraine to have implemented the Minsk II Agreements at
| any time since 2015, when they were introduced. Minsk II
| says as soon as the Donbas region gets some autonomy and
| votes for their own representatives, Ukraine would get
| control over the entire borders of its country, everyone
| would get amnesty, lay down their arms, and unicorns
| would frolic around. But for some reason this was
| considered "bad" and the election kept being postponed:
|
| https://en.wikipedia.org/wiki/Minsk_agreements#Evaluation
| _an...
|
| As a libertarian, I blame the politicians:
| https://www.youtube.com/watch?v=Mg4Jmnw3xQg
|
| 2. An easy way that the USA could unilaterally prevent
| this escalation is simply to say that Ukraine would not
| join NATO. Tulsi Gabbard for instance literally said this
| in the first days of the war:
| https://www.youtube.com/watch?v=OF5oPNjMZw4
|
| Until 2009, most of Ukraine was against joining NATO:
| https://www.kyivpost.com/post/10444
|
| But George W Bush, besides invading Iraq, also for some
| reason insisted, demanded that Ukraine and Georgia join
| NATO anyway: https://www.reuters.com/article/us-nato-
| ukraine-bush/bush-vo...
|
| The following presidents could have simply rolled this
| back. Not even other NATO countries really wanted what
| George W Bush was pushing, but it turned into an
| escalation.
|
| And literally every responsible person was warning about
| this for decades: https://theconversation.com/ukraine-
| war-follows-decades-of-w...
|
| https://www.armscontrol.org/act/1997-06/arms-control-
| today/o...
|
| The problem is these people were just ignored by the
| decision makers in power:
| https://www.youtube.com/watch?app=desktop&v=KqE7UTptgGg
|
| I wouldn't say it's "unprovoked". It was not provoked by
| Ukraine, but certainly by NATO's expansion. A lot of
| people around the world feel this way, including leaders
| of billions of people (China, India, the catholic Pope,
| etc.) https://www.youtube.com/watch?v=oEbVBi1f0e8 and the
| people themselves
|
| India: https://thewire.in/world/more-indians-hold-us-
| nato-responsib...
|
| China: https://uscnpm.org/2022/04/19/chinese-public-
| opinion-war-in-...
|
| 3. To be 100% clear, the CIVILIANS of any country are not
| to blame for any of this. The people of Ukraine are
| victims in this, just like Iraqis were victims of US
| invasion and occupation. But I can still blame Saddam
| Hussein for ousting inspectors and giving the US an
| excuse to invade. If you think the Russian invasion was
| "unprovoked", then the invasion on Iraq was even more
| unprovoked. But both are far more provoked than, say, the
| US bombing of Laos to the stone age, more than any
| country has ever been bombed in history. Totally
| unprovoked "special military operation", completely.
| There have to be ways to stop this. And it's called
| respect for human life and having public discussions with
| leaders instead of bombing their population.
|
| Just my 2 cents.
| ROTMetro wrote:
| As the old 'Ukraine just has to have no agency for there
| to be peace'.
|
| Remember the Minsk II Agreements were based on the
| predicate that the 'little green men' WEREN'T Russian
| soldiers. Which even Russia now admits was a lie. How
| could a framework based on a lie about one side's
| aggression work to.... prevent future aggression by that
| lying side?
| wstuartcl wrote:
| yeah I think there are two things that will be interesting
| here. The real detailed timeline. How much Thiel's cohorts
| jumped into offer bridge loans or stopgaps to impacted
| companies for insane rates/equity.
|
| IMHO this feels like a small problem that was turned into a
| crashed bank by targeted withdraws -- with the goal being
| blood in the water for the industry so the companies and
| investors that yanked out could clean up.
| chernevik wrote:
| It was always going to be someone who noticed that SVB's idiotic
| investments had put a hole in its balance sheets, and that it was
| largely funded with hot money that would depart when that hole
| was noticed.
|
| Blaming Thiel for being that someone is just saying he was more
| alert than anyone else.
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