71–80 of 173 posts
The VCs collectively orchestrated a bank run that destroyed a bank that serviced them for 40 years, when they should have instead cooperatively organized an LTCM-style consortium bailout for it, and helped them raise capital. The selfishness and short-sightedness of VCs never ceases to impress.
The entire VC model is to make investments with 10+ year time-to-profit.
Earlier quoted context omitted.
I thought the follwoing was an interesting analysis: Aside from the fact that those assets don't seem to be valued at the current price (i.e. are marked at cost basis, not market,) much of it is already pledged as collateral. https://twitter.com/FedGuy12/status/1634031134505066496
They had 45 billion in withdrawals before they ran out of liquidity and were taken over by FDIC, so that analysis would appear to be incorrect, since it implied they only had 80-55 = 25 billion of liquidity available.
Still certainly very possible that the analysis is incorrect.
[0] https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/03/DFP...
Earlier quoted context omitted.
> the assets of the balance sheet exceed the liabilities by a reasonable percentage Until the FDIC pores over their books, nobody can say anything sensible about what they own, what they sold, what they sent out and what is secured as collateral.
I mean, I'm just going off the FDIC's assertion that > As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits. And I'm not trying to claim that the balance sheet necessarily entirely reflects reality
December 31st, or even March 1st, are virtually irrelevant to a bank collapse today. Assets were sold at a deep discount, presumably some were pledged, and deposits fled.
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> the assets of the balance sheet exceed the liabilities by a reasonable percentage Until the FDIC pores over their books, nobody can say anything sensible about what they own, what they sold, what they sent out and what is secured as collateral.
I mean, I'm just going off the FDIC's assertion that > As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits. And I'm not trying to claim that the balance sheet necessarily entirely reflects reality
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I think you massively underestimate how hard it is to coordinate under these kinds of conditions. Plenty of startups are going to be unable to make payroll, which can pierce the corporate veil in CA, it's not a situation where cooperation is the first thought.
> I think you massively underestimate how hard it is to coordinate under these kinds of conditions. I think you're unfamiliar with the Long-Term Capital Crisis, and the speed with which it was resolved (two days: Sep 22-23). In fact, it's partly because the NY Fed and big banks acted so swiftly and responsibly, that most people have never heard of this and don't realize how close we came to a financial crisis: >The F…
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Uh, no? Do you know how they got into this mess to begin with? They were over-exposed to US treasuries. Let's talk about that for a moment: 1) When yields go up, treasury prices fall. 2) When yields go down, treasury prices rise. 3) The only way you get the basis cost for a treasury back is if you hold to maturity. When a bank run happens, you (if you are bank) need cash. Lots of it. If you own assets, you have to se…
Over exposed to US treasuries? I don't think anyone has put those words together before. It's like saying they were over exposed to cash. You're saying a bank run occurred because they had a duration mismatch on US government debt where maturities were less than 1 year. I don't buy that explanation at all...
Long term treasuries have declined 40% in value since they peaked in 2020.
https://www.google.com/finance/quote/TLT:NASDAQ
Banks hold a lot of treasuries as part of their capital requirements. So long as they intend to hold them to maturity, they don't have to mark them to market.
Banks collectively hold about $620 billion in loses in held-to-maturity securities right now since they have declined rapidly in value during the Fed's interest rate hikes.
https://www.aol.com/finance/why-silicon-valley-banks-crisis-...
If you can hold them to maturity, you're fine. If you need to sell them to raise cash (to cover other losses or during a bank run) those losses become real.
And if your startup had $10m in cash in SVB, but now you find out you're only getting back, say, $7m, that's very bad news for your business.
Honestly this makes a ton of sense. The FDIC will be returning most (or all) of the deposits in SVB, so the debt is reasonably safe (at least as far as debt that startups take on ever is). Whoever is funding this is probably not taking on all too much liability, and if they're heavily invested in the startup ecosystem could easily be making enough back from this indirectly to make it worthwhile. For brex this has to…
97% of deposits in SVB exceeded the FDIC threshold. The question is, by how much on average? The amount of risk here is significant. I think this is a desperate play by a company in a struggling industry.
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Uh, no? Do you know how they got into this mess to begin with? They were over-exposed to US treasuries. Let's talk about that for a moment: 1) When yields go up, treasury prices fall. 2) When yields go down, treasury prices rise. 3) The only way you get the basis cost for a treasury back is if you hold to maturity. When a bank run happens, you (if you are bank) need cash. Lots of it. If you own assets, you have to se…
Over exposed to US treasuries? I don't think anyone has put those words together before. It's like saying they were over exposed to cash. You're saying a bank run occurred because they had a duration mismatch on US government debt where maturities were less than 1 year. I don't buy that explanation at all...
The VCs collectively orchestrated a bank run that destroyed a bank that serviced them for 40 years, when they should have instead cooperatively organized an LTCM-style consortium bailout for it, and helped them raise capital. The selfishness and short-sightedness of VCs never ceases to impress.
> when they should have instead cooperatively organized an LTCM-style consortium bailout for it I was on the phone with portfolio companies, friends and clients yesterday ensuring they pulled their funds to a back-up bank account. SVB was a national bank. It's not a charity, or even a local bank serving a niche community. It was a big bank, and a badly-run one at that. Nothing they do isn't done by others. I believe…
It was more of a regional bank, specifically one servicing SV, with at most sporadic branches elsewhere, usually just one in a given state in its largest major city (e.g., one in NY: in NYC; one in D.C.; one in Colorado: in Denver). In many states they have no branches (e.g., Florida): https://www.svb.com/locations
> Nothing they do isn't done by others
Then why did so many startups and VCs bank with them?
> my friends and their missions
I would personally be hesitant to use this terminology for others, unless they're actually doing something truly impactful and impressive, like curing some horrible disease, going to Mars, or at least actually in the military on some mission.
Earlier quoted context omitted.
Uh, no? Do you know how they got into this mess to begin with? They were over-exposed to US treasuries. Let's talk about that for a moment: 1) When yields go up, treasury prices fall. 2) When yields go down, treasury prices rise. 3) The only way you get the basis cost for a treasury back is if you hold to maturity. When a bank run happens, you (if you are bank) need cash. Lots of it. If you own assets, you have to se…
Over exposed to US treasuries? I don't think anyone has put those words together before. It's like saying they were over exposed to cash. You're saying a bank run occurred because they had a duration mismatch on US government debt where maturities were less than 1 year. I don't buy that explanation at all...
Only if your definition of risk is limited to default risk.
It looks like a lot of their holdings were in MBS and a lot of the treasuries were recently sold at losses (which necessitated raising capital, which appears to have set this whole thing off), but there is no reason this couldn't have happened if they only held treasuries anyway.