03/14/23

Good morning! It’s Tuesday, March 14th.

Pi day! Also, less known one… Bake a pie in solidarity day.

I am deciding right now, in this moment, that I’m going to bake a pie today. Not today, as in the day I’m recording this, but today as in the day you’re hearing this. I’m gonna bake… Well, make I guess… a banana crème pie. Oh! But also, you know how makes a GREAT apple pie. My friend Dana.

And now, the news.

Silicon Valley Bank Explainer

-via Vox, Reuters, AP News, NY Times

Special episode today! Pre-recorded on Sunday, just an FYI. Because… you know… life, baybee. But also because sometimes I like to use this show as a way to force myself into understanding something and that’s what I needed to do here.

So let’s talk about the Silicon Valley Bank collapse. Now, again, the cavate here is that I’m pre-recording this. This may change between now and then, but let’s get into it as far as we can.

As you may have heard, on Friday, the Silicon Valley Bank, or SVB, suddenly collapsed.

If you haven’t heard of this bank, it’s probably because you don’t work in tech – though they took in billions in deposits, they only had 17 branches.

But that doesn’t negate the power of this bank. It was founded in 1983 and kind of from the jump became the bank for tech startups, with the bank itself saying that, in 2021, they were banking for nearly half of the venture-backed startups.

Things were going swimmingly until earlier last week. Or, well, I guess they weren’t going great before last week, but last week is when things went… not good.

So overall, there’s been a slow in venture capital, or VC, and so less money is going into the bank. Also, people started taking their money out of the bank.

The thing is… when you have like… $7 in your bank and go to take your money out, that’s pretty easy for the bank to cover. When you’re talking about people trying to take out billions at once… the bank doesn’t have that. Because they’re not just chilling with your money. They’re investing it, to try and make that paper.

So they didn’t have enough money on hand to cover the withdrawals. On Wednesday, to square up their balance sheet, the bank’s parent company sold $21 billion in securities at a $2 billion loss. It was meant to square up their balance sheets, but instead got people a little nervous. The share price of SVB Financial went (down sound) on Thursday. (That’s the sound of something going down, just FYI). On Friday, trading was stopped and SVB was looking to sell, while big big companies and VC names were trying to grab their money out while they could. By midday Friday, it was all over for the bank – regulators shut it down.

So part of the problem here is that SVB with their 17 branches didn’t have a diverse clientel. So when one industry starts to dip out, it’s not like they could turn to some other group of clients and convince them to stay.

Also on Thursday, a bank called Silvergate, which catered mostly to crypto, also said it was winding down.

And yes, this feels like an isolated problem a little bit, right? These are tech banks that deal with a lot of money, but not a lot of different peoples and industries money.

On top of that, some money people believe bank’s failing every now and then is a good thing. They believe that, with too many banks, there’s less overall profit. However, the flipside of this is the concern that, because so much of this is just about feelings and vibes, people worry about this failure is contagious.

So yeah, a couple other banks could have some issues now that SVB is going under. However, it’s likely those will be smaller banks. Because Wells Fargo, JPMorgan, banks like those have a diverse enough clientel and set of deposits.

In other words, their whole business model isn’t just hoping that people who invested everything in something called “meme stocks” which is a real thing and refers to stuff like Game Stop and Dogecoin. And that’s… smarter for a lot of reasons I shouldn’t have to explain here.

Now, the biggest issue right now is – what is the federal government going to do about the bank AND about people with deposits. Because their money is only insured to a quarter million. And, as a reminder, that’s… WAY less than the amount that most of the people have in the bank.

Treasury Secretary Janet Yellen said on Sunday that the government will not bail the bank out. However, they are trying to figure out how to help depositors.

In the meantime, with still hours to go until Asian markets open, it’s unclear if someone will step in and purchase the bank. I’d do it myself, but I’m not exactly liquid right now.

Until we know for sure what’s going to happen, if anyone tries to bring this up in conversation with you, here’s a little something you can say:

“that’s why I always say… if I need a diverse portfolio, so does my bank. I diversified my assets, they need to diversify their clientel. And speaking of diversifying, it’s still National Women’s History Month… what does the makeup of your board look like?”

Right? Ya gotta pivot at the end.

And that’s it. That’s the news.

Special edition, edition.

I’m proud of… honestly, I know my shitch here is that I always say I’m not proud of myself but I looked up a LOT of banking stuff. So I’m proud of, at least, not falling asleep.

But more than that. More than me, for sure, but also, more than anyone who went all in on GameStop and that’s the only thing they know about investing and they’re still going to corner you in a bar and try and talk to you all about finance because they read a Vox article once and watched American Psycho way too many times for you to follow them to a second location… because you are smart and great and all my favorite things… I’m proud of you.