Silicon Valley Bank’s Malfeasance
[Editor’s note: In our two-part series we first chronicle the history behind the Silicon Valley Bank’s demise and the risky investments compounded by the ESG management policy. Freedom-loving citizens have to worry about the federal government using the crisis to further erode their freedom by moving ever closer to a digitized currency.]
The hottest story around is the failure of the Silicon Valley Bank (SVB) taken over by California state regulators this past Friday followed by Signature Bank of New York being closed down by state regulators this weekend. Signature Bank experienced a classic run on the bank when depositors withdrew 10 million dollars in hopes of preempting the loss that investors suffered from the collapse of the Silicon Valley Bank.
A quick review of the circumstances which led to Silicon’s failure is crucial in forecasting what will happen to the stability of banks and other financial instruments, all having an impact on the average citizen. SVB opened its doors in 1983 in Santa Clara, catering to the Tech industry accepting deposits from venture capitalists, tech start-ups, and Big Tech. The collapse of SBV can be traced back to the time when the country was locked down by executive order. Big Tech and online sellers (Amazon, Apple, Microsoft, Google, and Facebook) made a whopping 1.2 trillion dollars during the pandemic. You can be quite sure these giants deposited some of their finds in SVB. The gold rush continued and many venture capitalists and start-up tech companies came to town.
After the lockdowns were eased, the Big Tech companies listed above laid off 5-6% of their workforce. Executives of these huge tech companies cited the rise in inflation and the fears of recession as the reason for cutting their workforce. As deposits in SVB grew during the pandemic, they fell just as fast with the end of the lockdowns.
With the horrible financial policies perpetrated by the Biden Administration, the economy began to tank as inflation and interest rates soared. When those two economic factors come into play, the return on investment becomes harder to come by. Normally, when there is high inflation, banking institutions divert their deposited money into the bond market for stability. With the simultaneous hike in inflation and interest rates, the bond market no longer becomes a haven either because of the inverse relationship between interest rates and bond yields. SBV invested in treasury bonds when interest rates were low, and their yield was only 1.79% far below the current Treasury rate of 3.9%. The bank’s misguided investment led to a 21 million loss of revenue.
Inflation also was a huge factor in SVB’s collapse. Rising inflation and interest rates caused venture capitalists to pull back on investments in startup tech companies seeking funding. When the interest rates were near zero, money was easy to come by through loans. The Fed printing excess money meant there was plenty to go around. When the economy tightened with the increase of interest rates, the free money so to speak, was no longer as abundant. As a result, small companies needed to withdraw more money from the bank than they might normally do for the day-to-day operational costs. The lack of venture capital investment in Silicon Valley is not the fault of SVB, but their ongoing poor management and lack of foresight which proved to be too much to overcome.
To diversify SVB’s portfolio, the bank bought up a lot of Treasury bonds. The short-sightedness of SVB in investing in Treasury bonds is complicated by the institutional woke corporate decisions made by the bank. For instance, the Silicon Valley Bank in January of 2022 arrogantly announced a plan to invest $5 billion in loans by 2027 to foster the green agenda. CEO Greg Becker said, “Our ability to make a meaningful difference for people and the planet, and to address the systemic risk that climate change presents, is magnified by the outsized impact our innovative clients make.”
SVB’s sustainable financial commitment can be found here and is filled with progressive platitudes of the so-called existential crisis of climate change. This loan program did not reap the financial harvest SVB was hoping for, or perhaps it did not matter in the minds of the SVB’s executive directors for they may be more ideological than financially responsible. The blindness caused by woke ideology obscured the fundamental principle any bank must follow; risky investments rarely produce favorable results.
To put the risky behavior in some perspective, Steven Moore sums up the financial aspects of climate change in this way, “Now here’s the real scandal of the near trillion dollars that governments have stolen from taxpayers to fund climate change hysteria and research. By the industry’s admission, there has been almost no progress worldwide in combatting climate change. The latest reports by the U.S. government and the United Nations say the problem is getting worse, not better and we have not delayed the apocalypse by a single day. “
If you think things couldn’t get any worse for SVB, the bank entered into a joint venture with a Chinese Bank called, Shanghai Pudong Development Bank. The merger is called the SPD Silicon Valley Bank with its headquarters in China. To effectuate the new bank under Chinese control, SVB’s financial contribution amounted to 2 billion Chinese yuan ($290 million) in registered capital. With all the talk about the loss of American salaries in the wake of the closure of SVB, those proponents should look to the $290 million sitting overseas instead of being in Santa Cruz where it could be withdrawn by those who are responsible for payroll.
It is now easy to see, SVB was poorly managed and did a great disservice to the public they were supposed to serve. Any thoughts of a federal bailout should be swept off the table immediately. The FDIC insures depositors up to $250k, enough for the average American. If losses exceed the $250K threshold, then the venture capitalists and companies should shoulder their lack of due diligence. Hopefully, Congress has soured on the ‘too big to fail’ mentality by refusing to pay a penny of tax funds to help Silicon Valley and Signature Banks. Let SVB and Signature shutter their woke businesses and make room for financial institutions determined to strengthen our American economy rather than promoting woke ideas.
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