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The SVB collapse is a complex maze of investment strategies gone awry, little to no oversight, federal policies incentivizing bad behavior, and frightened investors who are supposed to be the brightest of the bright but who the FED characterizes as “ children [[link removed]] .” But at the simplest level it is the ongoing need of greed that drives all this “sound and fury, signifying nothing.”
The reality is that finance professionals are trained to drive profits and primarily by driving market capitalization for their company. This is supposed to be a company’s value but in the last couple of decades it is not really about value but how much finance professionals can make you think it is worth . Long gone are the valuations based on your products and services. Now what we make is in service to what we can make investors (including pensioners) think we should be worth. And it is all a house of cards just waiting to topple like SVB or Credit Suisse.
And again, behind the veil are folks like Peter Thiel (villain of the anti-environmental political funding), whose Founders Fund withdrew millions prior to the collapse and then tweeted out warnings to its investors and companies to do the same. Of course, Thiel has distanced himself saying he had personal funds (well 1% of his personal funds) in that bank. I won’t get into the details of how mind numbingly suspicious all of this is but the bottom line is Thiel’s Founders Fund moved to protect its wealth and help create a bank run (hurting so many others) to maintain their wealth.
But this doesn’t absolve SVB from its own greed.
The phrase “Age of Easy Money” refers to the last 10 years or so of low interest rates making it “Easy” to leverage money. There is a great Frontline documentary [[link removed]] on this topic if that’s a rabbit hole of interest. Federal policies encouraged companies to take loans and invest dollars thinking this will help trickle down to main street. As in mistakes past they didn’t recognize that greed would take hold and not social responsibility. Instead of thinking, how can we best help the economy stabilize and support the majority of people (middle class and working class), companies like SVB sought to maximize profit. So much so that they borrowed and invested equal to all the money they took in from deposits. This left them at risk. A modest change in the Fed tax rate resulted in SVB’s debt rising above its assets. When SVB took steps to hide this problem or explain it away like a child, “smart” investors like Thiel’s group pulled their money and told everyone else to do it too. This led to a “run” on the bank and laid bare the stupidity of a business that was “leveraged” too much.
The reality is that rich and powerful people don’t learn from these mistakes. The fact that the FDIC is bailing SVB out (and the Swiss government with Credit Suisse) and making their clients whole (which by the way are all just investors and companies taking investment - no everyday depositors) will only help teach these “children” that they can get away with anything. The only lesson learned by big business is that they need to find another way to get to a new “Age of Easy Money.”
More WhARF news next week,
Andy
Executive Director PowerPAC
PowerPAC is a social justice organization that strategically directs financial and human resources to local and state organizations working to deliver wins in legislative fights, ballot initiatives, and more. For years the money we've raised has, dollar for dollar, been given back to the communities we work with. We've made sure that your investments were being used to build power for our communities because too often we are underrepresented and ignored.
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