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> The management of SVB messed up massively, and some VCs noticed. They would have been every bit as insolvent if the VCs in question had kept their mouths shut

by ajross 4y ago

> The management of SVB messed up massively, and some VCs noticed. They would have been every bit as insolvent if the VCs in question had kept their mouths shut I keep saying this, but "The management of SVB" was a core part of the VC ecosystem. These weren't remotely separate entities. This bank was being run like a cartel, not a competetive service provider in an efficient market. And the VC's were, 100%, in on it. Exactly how, I suspect, is going to be revealed in the coming months.

amluto 4y ago
If I had to guess, this failure was neither complicated nor involved any sort of conspiracy on the part of the VS. Imagine you run a largish financial company. Over the course of a year or two, your customers like your service and ask you to hold on to a few tens of billions of dollars for them. And they only ask for 0.20% interest. Wow! You could invest this money in the usual money-market things (short term treasuries, etc), and earn very little money. Still plenty in the grand scheme of things (you're multiplying by tens of billions!), not you see dollar signs in your eyes and want more. And you look at the yield curve: https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2021 https://home.treasury.gov/resource-center/data-chart-center/... Wow, you can get 2% net if you buy long-dated treasuries, and 2% of tens of billions is hundreds of millions of dollars a year! And those dollar signs in your eyes get really big and you ignore the fact that this shiny yield curve is in part because no one sensible actually expects rates to stay low forever. And you also think "wow, this is such a good deal that I'm not going to think about the fact that a long-dated treasury is also a short bet on interest rates". So you decide to pull the trigger and buy these things with customer money. And then the plot actually gets a bit nefarious, because you discover that this will violate Basel III. So you lobby Congress to exempt you, and you succeed, and you go for it. And you make a killing, at least until it blows up completely. (The whole "liquidity" story is a red herring here. If SVB had been solvent, liquidity would likely have appeared. But SVB was actually insolvent, and no one really wants to lend money to an insolvent institution.) If the VCs had actually been paying attention, I bet some of them would have said to their portfolio companies "here are a few million dollars in capital -- kindly store it in a Basel III-compliant bank or maybe a money market operated by one of the big players" and not "SVB is down the road and they're great!". Because the VCs were not playing the "screw up the Fed's monetary policy next year" game -- they were playing the "throw lots of money at portfolio companies and hope some of them make it big" game.

by ajross 4y ago

amluto 4y ago

If I had to guess, this failure was neither complicated nor involved any sort of conspiracy on the part of the VS. Imagine you run a largish financial company. Over the course of a year or two, your customers like your service and ask you to hold on to a few tens of billions of dollars for them. And they only ask for 0.20% interest. Wow! You could invest this money in the usual money-market things (short term treasuries, etc), and earn very little money. Still plenty in the grand scheme of things (you're multiplying by tens of billions!), not you see dollar signs in your eyes and want more. And you look at the yield curve: https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2021 https://home.treasury.gov/resource-center/data-chart-center/... Wow, you can get 2% net if you buy long-dated treasuries, and 2% of tens of billions is hundreds of millions of dollars a year! And those dollar signs in your eyes get really big and you ignore the fact that this shiny yield curve is in part because no one sensible actually expects rates to stay low forever. And you also think "wow, this is such a good deal that I'm not going to think about the fact that a long-dated treasury is also a short bet on interest rates". So you decide to pull the trigger and buy these things with customer money. And then the plot actually gets a bit nefarious, because you discover that this will violate Basel III. So you lobby Congress to exempt you, and you succeed, and you go for it. And you make a killing, at least until it blows up completely. (The whole "liquidity" story is a red herring here. If SVB had been solvent, liquidity would likely have appeared. But SVB was actually insolvent, and no one really wants to lend money to an insolvent institution.) If the VCs had actually been paying attention, I bet some of them would have said to their portfolio companies "here are a few million dollars in capital -- kindly store it in a Basel III-compliant bank or maybe a money market operated by one of the big players" and not "SVB is down the road and they're great!". Because the VCs were not playing the "screw up the Fed's monetary policy next year" game -- they were playing the "throw lots of money at portfolio companies and hope some of them make it big" game.