Red Mosquito

tragabigzanda wrote:From NYT. Basically what I said a few posts back but told more elegantly:

But what brought S.V.B. down wasn’t lending to risky start-ups, or gambling on sketchy crypto coins, or some other ill-considered tech scheme. It was an old-fashioned bank run, set off back in 2021 by a series of old-fashioned bad decisions.

That year, the stock market boomed, interest rates sat near zero, and money was flooded into the tech sector. Many start-ups parked their cash at Silicon Valley Bank, and the bank, in turn, took that money and invested it, including in a bunch of long-dated bonds. Those investments looked relatively safe at the time but became riskier last year as interest rates rose and the bonds lost some of their value. This year, as tech investment slowed and start-ups pulled cash out of the bank to pay their expenses, S.V.B. needed to sell some of its bonds at a loss and seek fresh capital to meet its obligations.

The bank may have been able to survive all of this, but when it explained to customers (badly) what had happened, some of those customers got worried that the bank was in trouble. Venture capital investors got spooked, and told their portfolio start-ups to withdraw any money they had sitting at S.V.B. Other customers saw that happening, and they panicked, too. Voilà, bank run.

tragabigzanda wrote:

BurtReynolds wrote:It does seem like you'd have to be crazy to put big money into any regional bank after this. But maybe that's what the government wants.

I think maybe money market accounts have a higher degree of safety due to treasury backing? If so, and given their short timelines, it seems like those and short-term bonds are the way to go.

tragabigzanda wrote:

Bi_3 wrote:

tragabigzanda wrote:

BurtReynolds wrote:It does seem like you'd have to be crazy to put big money into any regional bank after this. But maybe that's what the government wants.

I think maybe money market accounts have a higher degree of safety due to treasury backing? If so, and given their short timelines, it seems like those and short-term bonds are the way to go.

I read earlier that SVB is very unique in it's lending relationships with startups and VCs that were much looser than any other sizable bank and that like ~75% of assets were deposited in the last three years. I doubt there are many other banks are like that

That would be insane.

I’m also really curious about their debt structure with starts ups. Assuming you’ve got a startup with some traction, like post-series A, and they’ve already incurred some bridge loans/venture debt from their VC funds, then what the hell does SVB consider collateral on a loan to a startup?

BurtReynolds wrote:It does seem like you'd have to be crazy to put big money into any regional bank after this. But maybe that's what the government wants.

Federal banking regulators took aggressive new actions aimed at preventing depositors in failed Silicon Valley Bank from losing money — and to prevent its downfall from unleashing a nationwide run across the banking system.

elliseamos wrote:Nothing to see here:

Federal banking regulators took aggressive new actions aimed at preventing depositors in failed Silicon Valley Bank from losing money — and to prevent its downfall from unleashing a nationwide run across the banking system.

simple schoolboy wrote:

elliseamos wrote:Nothing to see here:

Federal banking regulators took aggressive new actions aimed at preventing depositors in failed Silicon Valley Bank from losing money — and to prevent its downfall from unleashing a nationwide run across the banking system.

Some of the Tech Bros have been doing their damnedest to increase contagion. This is the Fed surrendering to them.

Wish there was a way that every company could make payroll while the loud assholes have to sweat for a couple of weeks to get access to their accounts.

tragabigzanda wrote: The bank may have been able to survive all of this, but when it explained to customers (badly) what had happened, some of those customers got worried that the bank was in trouble. Venture capital investors got spooked, and told their portfolio start-ups to withdraw any money they had sitting at S.V.B. Other customers saw that happening, and they panicked, too. Voilà, bank run.

4/5 wrote:

tragabigzanda wrote: The bank may have been able to survive all of this, but when it explained to customers (badly) what had happened, some of those customers got worried that the bank was in trouble. Venture capital investors got spooked, and told their portfolio start-ups to withdraw any money they had sitting at S.V.B. Other customers saw that happening, and they panicked, too. Voilà, bank run.

I haven't read too much about this, hopefully I'll get a chance in the next couple of days, but the bolded is what strikes me as very odd. VC investors understand the difference between illiquidity and insolvency and would understand that to sell older bonds right now would require taking a loss. Nothing about that indicates that a bank failure is imminent. I don't want to go full conspiracy theory and I don't know what to make of it but I'm very interested to follow the money and see who comes out ahead on this whole thing. This just feels off to me.

tragabigzanda wrote:

4/5 wrote:

tragabigzanda wrote: The bank may have been able to survive all of this, but when it explained to customers (badly) what had happened, some of those customers got worried that the bank was in trouble. Venture capital investors got spooked, and told their portfolio start-ups to withdraw any money they had sitting at S.V.B. Other customers saw that happening, and they panicked, too. Voilà, bank run.

I haven't read too much about this, hopefully I'll get a chance in the next couple of days, but the bolded is what strikes me as very odd. VC investors understand the difference between illiquidity and insolvency and would understand that to sell older bonds right now would require taking a loss. Nothing about that indicates that a bank failure is imminent. I don't want to go full conspiracy theory and I don't know what to make of it but I'm very interested to follow the money and see who comes out ahead on this whole thing. This just feels off to me.

I mean this sincerely: I have no faith that the average LP understands the difference between insolvency and illiquidity. The fund’s general partners / managing partners certainly do. I think there’s probably a lot of LPs out there who are getting a lesson in banking 101 this week.