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Startup lender Silicon Valley Bank to sell stock to cope with cash burn

reuters.com

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Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn

#81

Post by nostrademons »

selimthegrim wrote: post #79
nostrademons wrote: post #62

Earlier quoted context omitted.

Predicted 2000, 2008-09, and 2020. Predicted growth from 2003-2007. Falsely predicted a double-dip in 2011. Predicted growth from 2012-2020. Correctly predicted that 2015 and 2017-2018 would not result in recessions at a time that media and some friends were saying they would. Incorrectly predicted that 2020 recession would last longer than it did - I reversed opinion in early 2021, which was a little late to capture…

Civilization ending because it affects ability to respond to climate change?

I explain a bit more what I mean here:

https://news.ycombinator.com/item?id=35087159

I consider climate-change to be another potential civilization ending event in that it's going to create ripple effects that will likely lead to present-day governments falling. But I'm not referring to it as an effect here - TBH, I think the consequences of climate change are already locked in at this point and we're going to face them regardless of what we do.

I mean "civilization ending" as in "the rules are unknown or non-existent". As in, our civilization ends, not civilization for all time ends. There will be new forms of cooperation and political organization - I suspect they'll grow out of local governments.

Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn

#82

Post by JohnFen »

nostrademons wrote: post #80
JohnFen wrote: post #74

Earlier quoted context omitted.

Perhaps we have different definitions of "civilization-ending". Even if what you describe here actually happened, I wouldn't characterize that as a civilization-ending event. it would just be the passing of another nation. Civilization would continue, just as it has when nations have fallen in history. Although, I do need to add, while your scenario is technically possible, I do think it's vanishingly unlikely. The U…

I was torn on what to call it - debated using the term "state failure", which I think is more accurate but few people truly know what that means. Basically, I'm referring to an event that breaks our conceptions of what it means to be "civilized" - basically, that you follow laws, adhere to contracts, respect government authority, have a well-defined political process, pay with a stable currency, can count on your per…

OK, I understand better now. We do define "civilization-ending" (and perhaps even "civilization") very, very differently. Fair enough! I appreciate your explanation, thank you.

Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn

#83

Post by GreenPlastic »

nostrademons wrote: post #55
Octokiddie wrote: post #21

More context from another article: > The big losses experienced by the bank are directly related to the surge in interest rates over the past year, as the company's US Treasury holdings were bought at a time when interest rates were still relatively low. Bond prices fall as yields rise. https://markets.businessinsider.com/news/stocks/silicon-vall... More general context: - Banks are required by law to buy US Treasuri…

Unpopular and pretty far-out opinion: 2023-2024 is going to be a bigger financial crisis than 2008-2009, and is potentially a civilization-ending event. The brewing crisis is that the Fed needs to trigger a recession (with job loss) to bring down inflation, because the root cause of the inflation is that there are too few workers for the available roles in the current structure of the economy, and so the economy need…

We've been in one long cycle since 1998, continuing with the .com bubble and the GFC and finally Covid. With each one we've had to print more and do more to get out of it. Where it ends is anybodies guess...but each crisis requires a larger response

Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn

#84

Post by CapstanRoller »

nostrademons wrote: post #63
patch_cable wrote: post #60

Earlier quoted context omitted.

> pulling cash out of banks In practice, the cash still probably ends up at a bank, just in a different account. I don't think anyone is going to pull it out and start burying it in their back yard.

It still can trigger bank failures like the article is describing, though. Consumer pulls it out of one bank, creating a cash crunch there, and forces them to liquidate treasuries and realize large losses that had previously only been on paper. That bank is now insolvent. The bank that the recipient deposits them into now has more cash in hand, but they weren't facing a cash crunch in the first place. Some (bigger an…

Why would it get pulled out of the bank? Where would it go? I don't believe we'll see an epidemic of folks suddenly wanting to store their life savings under the mattress.

Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn

#85

Post by resters »

JumpCrisscross wrote: post #51
resters wrote: post #3

Earlier quoted context omitted.

SVB does a lot of venture debt. When venture debt is not repaid, SVB ends up owning the company, and can recover its exposure only if there is a buyer for the company or assets. In early stage land where valuations are the result of a fairly small consensus, it is plausible that SVB would have over-extended.

> SVB does a lot of venture debt These losses aren’t related to SVB’s debt portfolio. It’s due to their deposits being flighty. SVB banks start-ups. Start-ups are spending cash faster than they’re getting it from VCs or customers. That leaves SVB with fewer deposits with which to fund their assets, so they must fire sell assets, which isn’t fun to do.

Doesn't SVB require a startup to keep a certain amount of cash reserves deposited in order to be eligible for things like merchant accounts and other "free" financial services?

Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn

#86

Post by credit_guy »

nostrademons wrote: post #55
Octokiddie wrote: post #21

More context from another article: > The big losses experienced by the bank are directly related to the surge in interest rates over the past year, as the company's US Treasury holdings were bought at a time when interest rates were still relatively low. Bond prices fall as yields rise. https://markets.businessinsider.com/news/stocks/silicon-vall... More general context: - Banks are required by law to buy US Treasuri…

Unpopular and pretty far-out opinion: 2023-2024 is going to be a bigger financial crisis than 2008-2009, and is potentially a civilization-ending event. The brewing crisis is that the Fed needs to trigger a recession (with job loss) to bring down inflation, because the root cause of the inflation is that there are too few workers for the available roles in the current structure of the economy, and so the economy need…

Also fairly unpopular opinion: it's not going to be a financial crisis because of GPT. Yes, the Fed needs to keep rates high to fight inflation, and this would normally trigger a recession. But GPT bots will increase productivity tremendously in the next few years, so we'll be able to weather the Fed high rates without dipping into recession.

Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn

#87

Post by testfoobar »

CPLX wrote: post #67
testfoobar wrote: post #42

The wild thing is that the Federal Reserve is suffering from its own asset-liability mismatch due to the rise in interest rates. Income from its $8+ trillion balance sheet of Treasuries and MBS isn't covering its expenses (interest it must pay on reserves+operating expenses). But unlike a normal bank, the Federal Reserve cannot go bankrupt. It just books negative income and pays out by creating new money. https://www…

> But unlike a normal bank, the Federal Reserve cannot go bankrupt. It just books negative income and pays out by creating new money. I mean that is literally the entire point of their existence.

Agreed. The Fed is the backstop to the banking system.

But I think the Fed has been over-accommodative since 2008. Their reaction function to crises has been to lower rates/print money and then wait. They should've tightened much faster post 2008.

Did Silicon Valley Bank really screw up in 2021 by buying Treasuries if the Fed itself was doing the same? The Fed was doing QE and buying Treasuries in March-22 well into inflation.

I think the error was trusting the Fed to be a good steward of inflation. It is not. We're all learning the hard way.

Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn

#88

Post by beezle »

JumpCrisscross wrote: post #44
Octokiddie wrote: post #21

More context from another article: > The big losses experienced by the bank are directly related to the surge in interest rates over the past year, as the company's US Treasury holdings were bought at a time when interest rates were still relatively low. Bond prices fall as yields rise. https://markets.businessinsider.com/news/stocks/silicon-vall... More general context: - Banks are required by law to buy US Treasuri…

> Banks are required by law to buy US Treasuries (UST) Yes. But they’re not required to buy long-dated, high-yielding, high-duration Treasuries (or MBS). Silvergate and SVB, out of incompetence or greed, optimised for yield, not liquidity, despite banking flighty depositors.

Nor are they required to leave those same positions unhedged.

Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn

#89

Post by beezle »

jldugger wrote: post #40
Octokiddie wrote: post #21

More context from another article: > The big losses experienced by the bank are directly related to the surge in interest rates over the past year, as the company's US Treasury holdings were bought at a time when interest rates were still relatively low. Bond prices fall as yields rise. https://markets.businessinsider.com/news/stocks/silicon-vall... More general context: - Banks are required by law to buy US Treasuri…

> UST prices fall as interest rates rise Just to underscore the point here, in the past year, the fed has raised rates a ton, and counterintuitively, AGG, an ETF tracking a bond index fund heavily weighted towards US gov debt (by necessity) is down 15 percent over the past 2 years[1]. You might naively assume a bond fund values would reflect interest rates but there is a lag as you wait to roll over old bonds into ne…

There are also negative tax problems for those who continue to hold the ETF or mutual fund after others have sold and the redemptions cause the sale of actual bond holdings most likely at a loss.

Personally I always advise friends/family who are considering bond funds to instead consider using Treasury Direct to create their own bond portfolio if their intent is to hold to maturity. Similar can be done with liquid corporate bonds through brokers like IB.

Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn

#90

Post by resters »

GreenPlastic wrote: post #83
nostrademons wrote: post #55

Earlier quoted context omitted.

Unpopular and pretty far-out opinion: 2023-2024 is going to be a bigger financial crisis than 2008-2009, and is potentially a civilization-ending event. The brewing crisis is that the Fed needs to trigger a recession (with job loss) to bring down inflation, because the root cause of the inflation is that there are too few workers for the available roles in the current structure of the economy, and so the economy need…

We've been in one long cycle since 1998, continuing with the .com bubble and the GFC and finally Covid. With each one we've had to print more and do more to get out of it. Where it ends is anybodies guess...but each crisis requires a larger response

FWIW I think it's an amazing time to be a debtor.
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