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Home » The speedy failure of Silicon Valley Bank

The speedy failure of Silicon Valley Bank

The New Neo Posted on by

For this story I’m going to suggest you go to this post at Legal Insurrection and follow the internal links there as well. An excerpt:

Within a 48-hour period, Silicon Valley Bank (SVB) went from being the “Bank of Venture-Backed Tech Startups” to making history as the second biggest bank collapse in U.S. history.

Now the feds have shuttered the bank…

What happened? It appears the root cause of this bank collapse stems from federal requirements to begin with. After the last financial crisis of 2008, regulators required banks to hold more capital. So, banks opted to hold Treasuries and Mortgage Securities and apparently treated them as if they had no risk.

However, it turns out pumping billions of dollars into the economy in the name of “science” and “equity” actually had consequences.

The whole thing apparently played out in 48 hours:

The company’s downward spiral began late Wednesday, when it surprised investors with news that it needed to raise $2.25 billion to shore up its balance sheet. What followed was the rapid collapse of a highly-respected bank that had grown alongside its technology clients…

The roots of SVB’s collapse stem from dislocations spurred by higher rates [set by the Fed to stem inflation]. As startup clients withdrew deposits to keep their companies afloat in a chilly environment for IPOs and private fundraising, SVB found itself short on capital. It had been forced to sell all of its available-for-sale bonds at a $1.8 billion loss, the bank said late Wednesday.

The sudden need for fresh capital, coming on the heels of the collapse of crypto-focused Silvergate bank, sparked another wave of deposit withdrawals Thursday as VCs instructed their portfolio companies to move funds, according to people with knowledge of the matter. The concern: a bank run at SVB could pose an existential threat to startups who couldn’t tap their deposits.

An old-fashioned bank run, this time involving venture capitalists?

Comments

The speedy failure of Silicon Valley Bank — 77 Comments

  2. It has seemed to me for quite some time that a great many companies especially, but not only, in Silicon Valley run on smoke, mirrors, and hope. That is no doubt a reach, and overly simplified, but that is my impression.
    I stuck my toe into an investment in SVB awhile back on the recommendation of some guru. Not Jim Cramer. I don’t recall exactly why I soured on it, but I dumped it some time ago. Glad I did. I still have the worthless stock certificates from my failed airline. I don’t need any more souvenirs of failed investments.

  3. Banks are different. One is not required to be a canny, skeptical investment guru to choose which bank to use.
    Or should not, anyway.

  4. Right now, this really is a Tech/VC/mainly California problem.

    Something will be announced by 6 PM EDT tomorrow. Either one of the big banks will buy them or the Fed will insure all deposits including those above $250K. Don’t like that but it will really cause problems for other smallish regional banks with lots of VC exposure if nothing is done while JPM, Citi, BofA, etc. go along there merry ways.

  5. Banks that specialize in risky lending, such as tech startups, and focuses their efforts on a segment of industry that can be volatile is a bad idea. Most banks are much more diversified, and therefore safer.

    The media will try to drum up some panic over this. Some people will lose money and some tech startups may go bust. Anyone with deposits of $250,000 or less will be paid by the FDIC. It’s a mess, but it’s not the end of the financial world.

    FASB may have to change their requirements for marking reserves such as Treasury bonds to market. With the Fed rapidly raising interest rates it has forced low interest bond prices down. They will not result in a loss if held to maturity. If FASB allows them to be marked as if held to maturity, it will release the tension on those reserves. That’s exactly what they did to end the financial panic of 2008. On March 20th, 2009, they allowed the banks to mark their MBSs as if held to maturity. That was the beginning of the recovery.

    See this: https://hbr.org/2009/11/is-it-fair-to-blame-fair-value-accounting-for-the-financial-crisis

  6. One of the most scarring days of my life was when Washington Mutual went poof without anyone coming in to save it after it had happened for others. I’ve still got an account that has the WAMU holding company on it worth like $12 or something as a reminder.

    Ever since then I am extremely gun shy about investing in banks and am always keeping my head on a swivel looking for signs of danger.

  9. If I understand correctly, regulators promoted a higher ratio of core capital to total assets.

    Silicon Valley Bank was unusual in that most of its assets were held in securities (56%) and only 35% in their loan portfolio. (Which was not what regulators promoted). The value of their bonds has taken a hit due to higher interest rates. They had to sell bonds to meet the demand for withdrawals and write-down some of their bond portfolio, and that generated a loss of confidence in the bank. The bank specialized in tech industry loans, especially start ups, making its loan portfolio vulnerable as well. Also, most of its deposits were in large commercial accounts and something like 85% of the sum were not insured.

  10. Tucker had an excellent segment on this unfortunate event last night with a woman named Stephanie Pomboy. Both were in agreement that Biden’s handling of the economy has been disastrous; meanwhile our ghastly Secretary of the Treasury is more concerned with testifying in Congress about the importance of abortion and with traveling to Ukraine in order to promise endless billions to Z (“The Welfare Queen”) than in addressing the very real problems of our economy and our financial system (few have forgotten 2008). How the markets respond on Monday morning will certainly be very important indeed.

  13. Jahaziel Maqqebet:

    At Legal Insurrection they ban people now and then but quite infrequently. They don’t “shadow-ban” anyone, unless by that you mean they don’t always inform the person being banned that it’s happening. I don’t either. When someone has violated the rules, especially over and over after warnings, or when someone is an obvious troll, the person gets banned and that’s that.

    Most blogs operate that way. In addition, sometimes spam filters inadvertently delete or sequester comments without the moderators realizing it.

  14. I’ve read somewhere that over 90% of the deposits in SVB are not insured, because the accounts were in excess of the $250,000 threshold that is covered by the FDIC. And today, following up this tidbit, are words – rumors, really – that the Federal Government is considering a bailout that would keep all the depositors whole. So it sounds like somebody high up is running scared, and that comes as no surprise to me. This administration is really remarkable in its financial incontinence, its first instinct in all matters is to simply throw money at the problem without a second thought, as if this is a solution with no downside, consequence, or limiting principle.

  15. Related:
    “Home Depot co-founder torches ‘woke’ Silicon Valley Bank collapse, warns recession may be here already;
    “Banks are more concerned with ‘global warming’ than shareholder returns, Bernie Marcus argued”—
    https://www.foxnews.com/media/home-depot-co-founder-torches-woke-silicon-valley-bank-collapse-warns-recession-here-already
    Opening grafs:
    ‘Home Depot co-founder Bernie Marcus issued a strong warning for everyday Americans.
    ‘During an appearance on “Cavuto Live,” Marcus discussed the devastating collapse of Silicon Valley Bank, urging Americans to “wake up” and understand that the U.S. economy is in “tough times.”
    ‘ “I can’t wait for Biden to…talk about how great the economy is and how it’s moving forward and getting stronger by the day. And this is an indication that whatever he says is not true….
    ‘”I feel bad for all of these people that lost all their money in this woke bank. You know, it was more distressing to hear that the bank officials sold off their stock before this happened…. Who knows whether the Justice Department would go after them? They’re a woke company, so I guess not. And they’ll probably get away with it”…
    ‘Marcus attributed the historic downfall to the Biden administration and its persistent push for banks to prioritize “global warming” over shareholder returns….’

  16. this was a nosebleeding dumpsterfire, I don’t know what majic rostrums they abided by,

  17. Can’t wait for all the Occupy Wall Street type leftists to defend Biden bailing out banks.

  18. Some above touched on the ripples being made by the failure. I think the ripples will be major wave size very soon.

  20. Weird world. When I had money to invest, bonds were paying nothing. Now they actually offer interest, but I put the money in the stock market and watched it shrink.

    SVB took over Boston Private Bank and Trust, apparently a posh “private bank.” Depositors were lined up in front of the bank. They let one in every half hour. The depositors didn’t get their money and weren’t allowed access to their safety deposit boxes.

  21. You cannot have a zero-interest rate policy and pump money into the economy without “unintended consequences.” The unintended consequence was inflation.

    What to do about inflation? Well, they might have cut spending, increased oil/gas production, and unclogged the supply chain. Nope, they wouldn’t do that. The climate crisis is much more important to them.

    So, what else is in the quiver to fight inflation? Oh, yeah, let’s raise interest rates very aggressively. What could possibly go wrong? Oops! Bank holding low interest bonds as reserves end up being low on reserves because of the fall in potential market value in their bonds. Investors and depositors who see this get nervous and begin selling stock and withdrawing their deposits. The news spreads. The bank is forced to sell bonds below their cost to meet withdrawals. It becomes a panic, and the bank goes under.

    I don’t know if the bank regulators could have stopped this if they had allowed the balk to carry their bonds on their books at their value at maturity. If so, they could have raised short term cash to meet normal liquidity needs and held the bonds to maturity. That way there would have been no, or minimal, losses and no sudden panic.

    After all, the Fed’s actions since 2020 have gyrated the values of fixed income investments all over the map. These last three years have not been normal times in many, many ways. Unintended consequences have sprung up in many areas.

    When businesses and government s become too involved in frivolous issues such as ESG and DEI, unintended consequences often follow. We’re seeing that now.

  22. I think the model will just have to be seen as…
    1. Spend more money than you have (i.e., print more and more money)…in order to Increase inflation…in order to fight the enemy (i.e., the people)….
    1a. (While blaming said inflation on your Devil-Incarnate predecessor’s policies. In fact, blame EVERYTHING on your predecessor.)
    2. …Which catastrophically higher inflation rates will cause banks (and related institutions) to fail.
    2a. (While causing as many other institutions as you can to fail as well.)
    3. Bail out those banks (and/or companies and/or states, cities, universities, etc.) by FURTHER increasing the budget and hence increasing taxes, thereby increasing inflation AND ensuring that your enemy (i.e., the people) are both bailing out those institutions (see 2 and 2a above) and are themselves suffering because of increased inflation.
    3a. Make sure to significantly increase the number of people working in your tax-collection agency to ensure that no one escapes your net. This has the further advantage of adding threats, anxiety and instability among the enemy (i.e., the people)…all this while angling to establish a DIGITAL CURRENCY (for the good of the country and its citizens, for course) so that NO ONE will be able to conduct monetary transactions without your knowing it…and as a step to enable to turn off the spigot for ANY particular enemy agent’s perceived infraction, e.g., wrong-think.
    4. RINSE AND REPEAT for as long as it takes…to achieve your over-arching goal of TRANSFORMING your country (and sticking it to your enemy, i.e., the people).
    4a. Get a good, deep belly laugh with each policy “success” (IOW your war against the people and destruction of their country along with their hopes for a normal, let alone decent life). IOW laugh long and prosper…
    P.S. Have been thinking about the carnage in the Ukraine and the loss of life amongst both the Ukrainian and Russian populations and have concluded that President Fentanyl’s (or should that be President Tranq? President Fentanyl-Tranq?) success in “his” war against Americans and the culling the of lives is, in fact, a parallel action. That is, since the WTF (and its affiliates) has decided that such culling MUST take place (for the good of the globe), and Putin has been fulfilling his part of the “bargain” with gusto, it would most certainly be unseemly for “Biden” to appear that “he” is shirking his responsibilities and not pulling “his” weight, as it were, in this particular department…. It must be added that the increased death and destruction of the inner cities is also part of the pact made with the Big (Swiss) Cheese…. (And one could add to this the valiant efforts by PM Trudeau to accelerate glorious euthanasia in the True North. To be sure the cultivation of economic despair and desperation in both North American countries promotes the added “advantage” of encouraging suicides!!)

    Interesting times (as some people believe is said in that great country so admired by Klaus Shwab and his fellow gang of perverts)….

  23. Perhaps Musk has a bigger sense of humor—and/or derring do—than all of ’em put together…
    “Now Elon Musk says he’s ‘open to the idea’ of buying crisis-hit Silicon Valley Bank and turning Twitter into a digital bank”—
    https://www.dailymail.co.uk/news/article-11849521/Now-Elon-Musk-says-hes-open-idea-buying-crisis-hit-Silicon-Valley-Bank.html

    Not sure why he believes that this is in his interest…except for perhaps to assuage his innate need to rescue things, i.e., first the USA and then a failed bank and its depositers.
    THOUGH perhaps the KEY issue here is that rescuing this bank might be just a way to further stick “Biden” in the eye…stave off other bank runs and potential failures and demonstrate—globally—the foul consequences of “Biden”omics, IOW, “his” all-encompassing strategy to weaken and subvert the US.
    (That is, demonstrate…for those who are willing to open their eyes and see. If Musk in fact does this, following his Twitter “challenge”, then he will surely have thrown down the glove…or, to use a slightly different metaphor, “put on the gloves”…and declared himself “Biden” ‘s primary opposnent, IOW the TRUE resistance…to “the Empire”.)

    OTOH, not sure that even Musk has enough cash to shore up SVB….

    +Bonus (from the “male and female created He them” File…):
    https://www.dailymail.co.uk/news/article-11843711/Nessies-got-pal-Video-footage-captures-sighting-Loch-Ness.html

  24. Related?
    “Billionaire Bill Ackman on SVB collapse: Government has 48 hours to fix ‘irreversible mistake’ “;
    ” Ackman said the FDIC and OCC ‘[failed] to do their jobs’ “—
    https://www.foxbusiness.com/markets/billionaire-bill-ackman-svb-collapse-government-has-48-hours-fix-irreversible-mistake
    Key grafs:
    ‘…Billionaire investor Bill Ackman wrote a lengthy analysis of the Silicon Valley Bank failure on Saturday, arguing that the U.S. government needs to protect all of the bank’s depositors.
    ‘ The financial expert says that the government needs to take action by Monday to avoid an economic meltdown.
    ‘…”By allowing @SVB_Financial to fail without protecting all depositors, the world has woken up to what an uninsured deposit is – an unsecured illiquid claim on a failed bank,” he began.;
    ‘He then predicted that people will rush to withdraw huge sums of uninsured deposits from all non-systemically important banks (SIB).
    ‘…”The FDIC’s and OCC’s failure to do their jobs should not be allowed to cause the destruction of 1,000s of our nation’s highest potential and highest growth businesses (and the resulting losses of 10s of 1,000s of jobs for some of our most talented younger generation) while also permanently impairing our community and regional banks’ access to low-cost deposits,” Ackman argued….’

    Key question:
    Why not? Given that destruction—sorry, Transformation—is their game?

  25. The FDIC did not ‘fail to do its job”, though the OCC might have. The FDIC does not insure deposits over a certain value. It’s an actuarial pool, not a magic piggy bank. They did not insure deposits in excess of $250,000 during the 2008 meltdown (when there were few runs on deposits-and-loans institutions) and should not today.
    ==
    Note, the in re their uninsured deposits, the depositors will not be made whole, but they will receive money back upon the purchase or liquidation of the bank.
    ==
    I’m wagering this Ackman guy is talking book.

  26. What to do about inflation? Well, they might have cut spending, increased oil/gas production, and unclogged the supply chain. Nope, they wouldn’t do that. The climate crisis is much more important to them.
    ==
    The Federal Reserve needed to do one thing, which was to contain the growth of monetary aggregates; auxilliary to that, they needed to tell the President and Congress that they would not goose the demand for Treasury issues by making purchases in the open market – i.e. tell them that they had to rely on the good will of the bond market or bloody cut spending. In order to contain the growth of monetary aggregates, they had to (1) not buy bonds or mortgage-backed securities, (2) sell bonds and mortgage backed securities if necessary, (3) increase the rate paid on reserves on deposit if necessary, and (4) increase the discount rate if necessary.

  27. by FURTHER increasing the budget and hence increasing taxes, thereby increasing inflation AND ensuring that your enem
    ==
    Inflation is a monetary phenomenon.

  28. “ I don’t know if the bank regulators could have stopped this if they had allowed the balk to carry their bonds on their books at their value at maturity. If so, they could have raised short term cash to meet normal liquidity needs and held the bonds to maturity. That way there would have been no, or minimal, losses and no sudden panic.”

    As I understand the problem, SVB looked good on paper, with sufficient reserves. The problem was that their reserves included a lot of bonds (and probably a lot of them “riskless” Treasury instruments) being carried at book value. The problem is/was that when inflation goes up, the value of bonds go down. Eventually, they will get the full value of their bonds back, when they mature, but as Keynes reportedly said, in the long run, we are all dead. Marked to market, their balance sheet was probably underwater, or close to it, thanks to the inflation this last year, that has crashed the value of the bonds used to secure their deposits. Should they have seen this coming? Sure. But their head of risk management was apparently spending her efforts pushing DEI. That is why I don’t think that they should get bailed out, but also why I fear that they will be.

  29. If this bank is declared “too big to fail” then all banks this size or larger should be forced to split in the multiple smaller banks.

  30. One word: Bitcoin.
    Where were the bitcoin exchanges keeping their money? When FTX (Don’t think fraud and political connections) what did those exchanges do with their money, what did That do to the capital reserves of SVB? This happened “slowly, then all at once.” ESG, woke, etc.are just distractions.

  31. “Inflation is a monetary phenomenon.”

    While true and almost a tautology, the Fed is not really in a position to tell the Treasury “screw you”, when it comes to their bond sales. They have long been Treasury’s buyer of last resort. If they don’t but the debt that Treasury needs to sell, the government shuts down. And when they buy that Treasury debt, no matter how grudgingly, they effectively buy it by printing money (effectively, since they don’t need to actually print it, but just toggle electrons in various accounts). And that is the definition of inflation: too much money chasing too few goods.

    I put the responsibility for the inflation square on the Dem Congress of 2021-22, that went on a huge spending spree, spending $Trillions$ that they didn’t have, and at a time when the demand for US$s was weakening around the world. That money had to come from somewhere, or the USG would be forced to default, and not pay all of what it owed. And I don’t see the Fed being able to tell Treasury that it wasn’t their problem.

  32. Surprise?
    ‘Yellen Says Government Will Help SVB Depositors But “No Bailout” As Fed, FDIC “Hope” Talk Of Special Vehicle Prevents More Bank Runs’—
    https://www.zerohedge.com/markets/yellen-says-government-will-help-svb-depositors-no-bailout-fed-fdic-hopes-talk-special

    Sounds like she’s talkin’ outta both sides of her mouth…but then I’m sure it’s only transitory….

    As an aside, though, hasn’t anyone noticed that “Biden” policy WRT the USD is to try and make it as valueless as possible? (For the best of all possible reasons of course…. FOR THE PEOPLE plus as a tried, test and trusted—heh!—way of getting out of debt…)

  33. While true and almost a tautology, the Fed is not really in a position to tell the Treasury “screw you”, when it comes to their bond sales. They have long been Treasury’s buyer of last resort.
    ==
    The Fed buys in the secondary market. Not sure they’ve ever bought in the primary market. Certainly not since 1945.

  35. it is a rare gift to mess up fiscal and monetary policy, but powell and yellen have managed,

  36. This is a consequence of “Modern Monetary Theory,” which says you never have to pay off debt and there is no problem creating money with no assets behind it. The Democrats have adopted this theory and will pursue it until other countries stop accepting US debt.

  37. then she crawled back under her bridge, it is the flagship of zombie banking, why are they letting it go under, why did they let lehman go under,

  38. My understanding is that the maturities on much of the debt that SVB held were 10 years and more, and the (fixed) interest rates were around 1.6%. It should have been obvious that this was a high-risk bet by bank management, given all the inflationary pressures that were likely to manifest themselves at some point, even if that point could not be exactly predicted.

    There’s been a lot of schadenfreude directed a ‘tech bros’ who were (retroactively) dumb enough to put large amounts of cash into this bank. However, if you’re running an early-stage company with maybe 5,10, or 50 employees, and dozens of issues and risks of all kinds, worrying about the safety of deposits in a highly-respected 40-year-old bank probably isn’t likely to make it to the top of your worry stack.

  39. does anybody know what they are doing, at the faa, at the sec, at the cdc, the answer seems to be no,

  41. Hey, maybe some o’ these guys’ll help out, too:
    “Silicon Valley Bank gave company-wide bonuses hours before it collapsed: report”—
    https://www.foxbusiness.com/politics/silicon-valley-bank-company-wide-bonuses-hours-before-collapsed-report

    Maybe…

    Meanwhile…back in Bidenworld:
    “Bank Records, Documents Obtained By House GOP”—
    https://www.zerohedge.com/political/its-bad-we-thought-ccp-money-flowed-biden-family-according-bank-records-documents
    Opening grafs:
    ‘Republicans on the House Oversight Committee have been working with four witnesses with close ties to the Bidens, who have provided documents and other evidence tying the Bidens to the Chinese Communist Party.
    ‘ “It’s as bad as we thought…”….’

    If the past is any guide, “Biden” is going to come out in full bore attack mode targeting Republicans (and others) with aggressive abandon.
    Best defense is to demolish the threat…
    Great distraction, too!

  42. Barry: “Sounds like [Yellen] talkin’ outta both sides of her mouth … “

    I’m sure her mouth has more than just two sides, that is a prerequisite for the Fed. And there may be other available orifices as well.

  43. If inflation is always a monetary phenomenon, how do we explain a period like the Obama years when quantitative easing was the Fed’s plan? .

    “As of September 2008, the Fed held $477 billion in federally-issued debt, out of a cumulative total of $5.8 trillion. Thus, the Fed owned about 8 percent of all federal debt before the quantitative easing program began. In fiscal year 2009, the Fed then made net purchases of Treasury securities totaling $292 billion, followed by nearly $900 billion over the two-year period of 2010 and 2011 and $800 billion over the three-year period from 2012 through 2014. The Fed now owns $2.5 trillion in Treasury securities, or about 18 percent of all outstanding federal debt, which is well outside the historical norm.”

    The explanation that makes sense to me is that there was no shortage of goods of all kinds to purchase. And, even though Obama tried to drive energy prices up, he was never as successful at it as Biden has become. China and other manufacturing centers were pumping out the goods and even though there was plenty of money in the system, inflation remained relatively low because demand did not exceed supply.

    Another counter point. Most goods are rising in price because there are shortages (checkout you
    grocery and other retailers’ shelves) and the energy costs to manufacture them are rising. Alternatively, there is a shortage of housing in many markets, yet prices are not rising. Per Zillow, the value of my home has fallen by 5% in the last year. (That’s because higher mortgage rates have lowered demand for housing.) There’s plenty of money for mortgages, but a shortage of people who want them.

    I continue to believe that increasing the supply of goods, (unclog the supply chain) lowering energy costs, (increase drilling and production of oil/gas) and lowering government spending (thereby reducing the money in the market chasing goods) will have a positive effect on reducing inflation.

  44. Aye, the rub:
    SVB did exactly what it was supposed to, according to Fed guidelines—at least that’s what this author claims:
    “Silicon Valley Bank Followed Exactly What Regulation Recommended;
    “The second largest collapse of a bank in recent history could have been prevented. Now, the impact is too large, and the contagion risk is difficult to measure.”—
    https://www.zerohedge.com/markets/silicon-valley-bank-followed-exactly-what-regulation-recommended
    Except “loose money” quickly got much tighter…and almost zero inflation rates skyrocketed.
    Opening grafs:
    “The demise of the Silicon Valley Bank (SVB) is a classic bank run driven by a liquidity event, but the important lesson for everyone is that the enormity of the unrealized losses and financial hole in the bank’s accounts would have not existed if it were not for ultra-loose monetary policy.
    “Let us explain why….”

  45. It’s mostly the fault of SVB but the Fed didn’t help with the very rapid interest rate increases. Their mortgage back securities that they held in their ‘hold to maturity’ pool were say 1.5% yield. When they had to sell those as customers demanded/needed cash for payroll, for fear or whatever had them face heavy losses as those supposedly traditional bank worthy investments were not so worthy in the face of the Feds increases. However, where was their risk control? They had no hedges whatsoever on those low yielding mortgages which from my understanding is absolutely fundamental in risk management for a bank. In that they appear quite negligent. I’m not a banker so take this with a grain of salt. Lastly, I’m no fan of woke but kneejerk reactions to their perceived self important virtue signaling has little to do with bad maybe corrupt management. I guess there is schadenfreude for some in that though.

  46. The natural question many are wondering: “Is there a bigger crisis coming?”

    Directly related: “How fecal is the Biden administration?”

    Bottom line: What’s the karma for the country for allowing the latter to continue?

    Calculating…

    Rough estimate: could be tough times ahead.

  47. Well after tonight’s news I think it needs to be pointed out again that it’s not that this bank has no assets and that the uninsured depositors would have gotten some of their money eventually but now I guess they will get it all.

    Yellen says the taxpayers will bear no responsibility financially but I haven’t had the time to really look into it.

    Realistically this might be about the least bad resolution to this. I think.

  50. I’ll check with Fox Business in the morning to see what, exactly, is going to happen with SVB. Meanwhile, in our own far, far smaller portfolio, we knew that rising interest rates were going to make our bond holdings less valuable, and we started selling bonds last summer, accelerating in the fall. It seems to me that professional risk management at this fortunately atypical bank could have averted much of the mess.

  51. If inflation is always a monetary phenomenon, how do we explain a period like the Obama years when quantitative easing was the Fed’s plan? .
    ==
    The Fed paid interest on reserves on deposit, which reduced the money multiplier.
    ==
    QE antedated the Obama administration and IIRC the last round of it was in 2012. We can check.

  52. Another counter point. Most goods are rising in price because there are shortages
    ==
    Again, inflation refers to a general increase in the price level, not price dynamics in particular markets. In particular markets, prices are rising and falling all the time.

  53. Poor fiscal management (drastic government overspending) Lack of election security has dire consequences.

  54. QE antedated the Obama administration and IIRC the last round of it was in 2012. We can check. — Art Deco

    We covered some of this material before, such as supply & demand impacting inflation. As to quantitative easing, I would have agreed with Art D. a year or so ago, but no. The Fed quietly did QE during the covid period.

    https://americandeposits.com/history-quantitative-easing-united-states/

    The Fed has implemented quantitative easing programs four times since the financial crisis of 2007-2008. The most recent quantitative easing program was undertaken in 2020 in response to the COVID-19 pandemic and subsequent recession. This article will explore the past quantitative easing programs and their effects on the U.S. economy.

  55. Kate on March 12, 2023 at 8:03 pm

    Good point Kate. I had a modest portfolio of preferred stocks that can be even worse than long maturity bonds in this environment. I bought them with trepidation, and unloaded almost all of them about when you unloaded your bonds.

    The details for a bank are complicated. For example, if the regs. state you can mark to maturity then why not hang onto the bank’s bond portfolio and then borrow against it, say at the Fed. discount window.

    However, it is supposed to be a mark of financial shame to borrow at the discount window. Those actions are kept secret for something like a year because of this.

    Sensible managers would have been trading bonds long ago.

  56. Given the name of the bank, and its likely marketing aims, I wonder if, in addition, there was a kind of social cachet for a certain cohort to pick SVB over another bank, all things being equal.

  60. I’m always intrigued by the duplicity of the Democrats – forever campaigning on their demonization of “Evil Capitalists,” but always bailing out the prime exemplars: banks and venture capitalists.

    The taxpayers who aren’t going to pay for this are the same ones making under $400,000 that aren’t going to see their taxes go up a penny from the Biden Budget, and who won’t be underwriting the cancellation of student loans.

  61. “Yellen says the taxpayers will bear no responsibility financially…..”

    Um, er, given the Wise Owlita’s track record (and “Biden” ‘s, as a whole), what exactly ought one conclude from the above statement???
    (Or rather, “MUST one conclude”…)

    …unless of course what she’s saying is “Hey, no reason to panic! We’re printing the money RIGHT NOW!…”

  62. Heh, right on cue!!
    “ANNNNNND . . . IT’S A BAILOUT”—
    https://www.powerlineblog.com/archives/2023/03/annnnnnd-its-a-bailout.php
    But WAIT!
    “Biden administration tries to stave off financial crisis as second bank fails;
    “New York based Signature Bank taken over by regulators as government vows to protect account holders at Silicon Valley Bank”—
    https://justthenews.com/nation/economy/biden-administration-tries-stave-financial-crisis-second-bank-fails

    What is ABSOLUTELY CERTAIN is that “Biden” is going to have to get “his” act together and start blaming TRUMP ASAP.
    KJP, where the LQFPTCSITXHECK are you!!!?
    KRUGMAN?? Come on, let the BLAME GAME begin!!

    (Begin?)
    – – – – – – – –
    Meanwhile in East Palestine…

  63. If one ever felt the inclination to be kinda-sorta-maybe the least bit cynical…
    https://instapundit.com/574097/ :
    ” SVB, Signature Bank Depositors to Get All Their Money as Fed Moves to Stem Crisis.
    “Officials took the extraordinary step of designating SVB and Signature Bank as a systemic risk to the financial system, which gives regulators flexibility to guarantee uninsured deposits. Officials said that depositors at SVB will have access to all of their money on Monday.
    “UPDATE: In the comments, people point out that SVB is a techbro bank, and they’re Dem donors, while Signature has Barney Frank on its board. You people are so cynical.
    “And, also from the comments: “The government spent all weekend so they could bail out rich politically connected investors. Compare this to East Palestine Ohio where it took the government 3 weeks to even pretend to give a damn….”

    But let me make this ABSOLUTELY CLEAR: NO—AND I MEAN NO—BAILOUTS!!!

  64. P.S. In case you’re a bit perturbed by all the flip-flopping/flop-flipping “policy” on display here…well…don’t.
    Just think of it as Janet Yellen “following the [dismal/murky] science”(!)—a kind of “anything Fauci can do, I can do better” (Yellen was always a very competitive owlita)

    Besides, since we already know that “Biden” halely and heartily—just ask his doctor!—lies about EVERYTHING…
    https://twitter.com/McBrideLawNYC/status/1634410408495783936?cxt=HHwWgIC9-ezmy64tAAAA
    H/T Lee Smith Twitter feed.
    …there’s no real—justifiable—REASON to get worked up, that is, even more worked up than one might be already….
    (Or is there?)
    – – – – – – –
    Hmm. If it’s any solace, in Canada(!) they’re “experiencing” similar “issues”…not that this is anything new, mind you, since the “leaders” of both countries are operating out of the same WTF playbook…
    ‘ Montreal Ethics Prof Says Trudeau Liberals Are “Shameless”, “Criminal” And “Treasonous” ‘—
    https://blazingcatfur.ca/2023/03/13/montreal-ethics-prof-says-trudeau-liberals-are-shameless-criminal-and-treasonous/
    That’s funny! Said “Montreal Ethics Prof sure doesn’t SOUND Canadian…

  65. Joe Biden is about to address the nation on the bank crisis. I’m sure I’ll be comforted by his deep understanding of the problems.

  67. What’s distressing is that there appears to be no legal mechanism to recapitalize a bank through a debt-for-equity swap. You notice that the last round of major banking legislation was one of those 1,000 page lallapaloozas written by lobbyists holding bull sessions in Barney Frank’s office. And here is the garbage Mr. Frank yet again.

  68. As usual Art D. provides the view from 30,000 feet. The ground level view doesn’t matter.
    ==
    The term ‘inflation’ is used to describe a particular phenomenon, not some other phenomenon you’d prefer to discuss.

  72. “technobro bank”…the suffix ‘bro’ is added to words as if doing so actually proves something. What is a technobro? Is every founder of an early-stage company a technobro, or only the ones living in Silicon Valley? Does one have to have been in a fraternity (the origin of the term ‘bro’) to qualify? Is every VC fund manager a technobro, even the female ones? How about every Limited Partner (investor) in a VC fund, or every Angel investor?

    Or how about a restaurant owner in the Midwest, who has his payroll processing done remotely, and whose payroll funds were held at SVB? Is he at least an honorary technobro?

    There is now so much bitterness, so much resentment, so much anger and tribalism in the US that serious discussion of almost anything has become virtually impossible.

  75. it is indeed criminal how a bank like that operates, apparently with no safe guards, so those responsible owners get caught in the undertow,

  77. I would really like to see the nuanced view to understand the process better. When a bank fails, the investors and the debt holders should take a bath, because this is the only feedback mechanism that forces a business to properly acknowledge risk, in the future. The depositors, as I understand it, are a more complicated consideration. The FDIC protects the smaller fish by insuring up to $250K and making these funds available immediately. The remaining fish have to work through the bankruptcy process and eventually get what’s left – I’m told this is typically around 80-90 cents on the dollar. And ‘eventually’ is another key word.

    But what about this situation? Politicians and regulators are saying the investors and debt holders can expect a bath. But then again, a few hours ago, some of these were saying ‘no bailouts’, too. We shall see if the Ship-of-Consensus takes another change of course: Will this be another case of ‘Profits are privatized, Losses are socialized….’? I hope not – and wonder if this may be a moment for testing the mettle of the new Speaker.

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