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So basically the rapid increase in interest rates combined with lack of diversity in the bank’s clientele and investment choices quickly turned SVB into a colla

So basically the rapid increase in interest rates combined with lack of diversity in the bank’s clientele and investment choices quickly turned SVB into a collapsing inadvertent pyramid scheme?

rjtavares 4y ago
It's not a pyramid scheme. A pyramid scheme can only continue it people keep putting money into it. SVB didn't need more money coming in, they just couldn't handle money coming out.
- jnwatson 4y ago
  If someone had deposited $20 billion last Monday, they would have been fine. In a way, it did depend on money flowing in exceeding money going out.
  - mynameisvlad 4y ago
    A $20 billion deposit would have saved them, yes. But that doesn’t make it a pyramid scheme. $20 billion can fix a lot of problems. If a person is on the verge of bankruptcy and they get a cash infusion that saves them, they have not magically become a pyramid scheme. The fact that money helps fix a massive financial problem does not indicate something is a pyramid scheme, just that they have a massive financial problem.
    - jnwatson 4y ago
      Any system that requires new clients to pay for existing clients’ outflows is by definition a pyramid scheme.
      - mynameisvlad 4y ago
        I mean, that’s not the definition of a pyramid scheme at all, but go off sis. There is a very specific definition and it is not “ Any system that requires new clients to pay for existing clients’ outflows”
- gizmo 4y ago
  Startups have expenses. SVB had a customer base that was net unprofitable. This means outflows, and tons of it. SVB depended on a continuous stream of new venture capital being shoveled into the ecosystem to compensate for these outflows. They needed new startups to bring in new cash to make up for the cash burn of their current startup customers. This is a textbook Ponzi structure. Not criminal, just a totally irresponsible bet on interest rates staying close to 0 for another 10 years.
  - otterley 4y ago
    If that's a textbook Ponzi structure, then every bank is a textbook Ponzi structure by this logic. It's irresponsible to paint ordinary accepted business models that have been in place for hundreds of years and that work fine the vast majority of the time with a criminal brush.
    - gizmo 4y ago
      SVB is not like other banks. Ordinary banks don't have catastrophic interest rate exposure. Regular banks don't have money burning startups as their main customer base. Regular banks don't have the problem of having billions of dollars in deposits but no way to put that money to work. If you think SVB is a regular bank practicing accepted business models I'm not sure you appreciate how unusual SVB is in terms of their customer base and interest rate exposure.
      - otterley 4y ago
        My point is about banking as a business model being mischaracterized as a Ponzi scheme, not about SVB’s particular level of risk exposure. > Regular banks don't have the problem of having billions of dollars in deposits but no way to put that money to work SVB chose a way to put that money to work, but they miscalculated what would happen to the bond market. I don't know how or why they overexposed themselves to this risk, but I'm fairly certain it wasn't some decision made without the review of numerous investing and risk experts. SVB was not a fly-by-night operation. It was founded over 40 years ago. My first paychecks from the startup I worked for during the dot-com 1.0 era were drawn from them.
- karaterobot 4y ago
  Doesn't it seem like the definition of "pyramid scheme" is in the middle of expanding to mean roughly "any finance-related issue that seems a little shady to me"? I see it being applied so broadly when it's by rights a pretty specific and identifiable concept.
  - rvz 4y ago
    Yes. It IS a pyramid scheme. But it works like a Ponzi.
ksniwmidjd 4y ago
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So basically the rapid increase in interest rates combined with lack of diversity in the bank’s clientele and investment choices quickly turned SVB into a collapsing inadvertent pyramid scheme?

rjtavares 4y ago

It's not a pyramid scheme. A pyramid scheme can only continue it people keep putting money into it. SVB didn't need more money coming in, they just couldn't handle money coming out.

jnwatson 4y ago
If someone had deposited $20 billion last Monday, they would have been fine. In a way, it did depend on money flowing in exceeding money going out.
- mynameisvlad 4y ago
  A $20 billion deposit would have saved them, yes. But that doesn’t make it a pyramid scheme. $20 billion can fix a lot of problems. If a person is on the verge of bankruptcy and they get a cash infusion that saves them, they have not magically become a pyramid scheme. The fact that money helps fix a massive financial problem does not indicate something is a pyramid scheme, just that they have a massive financial problem.
  - jnwatson 4y ago
    Any system that requires new clients to pay for existing clients’ outflows is by definition a pyramid scheme.
    - mynameisvlad 4y ago
      I mean, that’s not the definition of a pyramid scheme at all, but go off sis. There is a very specific definition and it is not “ Any system that requires new clients to pay for existing clients’ outflows”
gizmo 4y ago
Startups have expenses. SVB had a customer base that was net unprofitable. This means outflows, and tons of it. SVB depended on a continuous stream of new venture capital being shoveled into the ecosystem to compensate for these outflows. They needed new startups to bring in new cash to make up for the cash burn of their current startup customers. This is a textbook Ponzi structure. Not criminal, just a totally irresponsible bet on interest rates staying close to 0 for another 10 years.
- otterley 4y ago
  If that's a textbook Ponzi structure, then every bank is a textbook Ponzi structure by this logic. It's irresponsible to paint ordinary accepted business models that have been in place for hundreds of years and that work fine the vast majority of the time with a criminal brush.
  - gizmo 4y ago
    SVB is not like other banks. Ordinary banks don't have catastrophic interest rate exposure. Regular banks don't have money burning startups as their main customer base. Regular banks don't have the problem of having billions of dollars in deposits but no way to put that money to work. If you think SVB is a regular bank practicing accepted business models I'm not sure you appreciate how unusual SVB is in terms of their customer base and interest rate exposure.
    - otterley 4y ago
      My point is about banking as a business model being mischaracterized as a Ponzi scheme, not about SVB’s particular level of risk exposure. > Regular banks don't have the problem of having billions of dollars in deposits but no way to put that money to work SVB chose a way to put that money to work, but they miscalculated what would happen to the bond market. I don't know how or why they overexposed themselves to this risk, but I'm fairly certain it wasn't some decision made without the review of numerous investing and risk experts. SVB was not a fly-by-night operation. It was founded over 40 years ago. My first paychecks from the startup I worked for during the dot-com 1.0 era were drawn from them.
karaterobot 4y ago
Doesn't it seem like the definition of "pyramid scheme" is in the middle of expanding to mean roughly "any finance-related issue that seems a little shady to me"? I see it being applied so broadly when it's by rights a pretty specific and identifiable concept.
- rvz 4y ago
  Yes. It IS a pyramid scheme. But it works like a Ponzi.

ksniwmidjd 4y ago

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