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VCs are a convenient scapegoat but if you look at what actually happened, this is the fault of bankers and bank regulators. Are we supposed to blame people for
by _skel 4y ago
VCs are a convenient scapegoat but if you look at what actually happened, this is the fault of bankers and bank regulators.
Are we supposed to blame people for putting money in a bank that had a solid track record since the 1980s, and didn't have any regulatory red flags? Are we supposed to blame VCs for not knowing about the bank's investment problems when the regulators who were supposed to know about them didn't know either? Should we blame founders for taking banking advice from their funders and boards of directors?
Are we supposed to forget that the era of easy money the article dislikes was created by the Fed, and that the duration risk on long-term securities that doomed SVB was also realized because of the Fed's reaction to its previous mistakes?
We should blame everyone, including the government, for this mess.
When people like the author single out VCs and rant about AI being a boondoggle it's clear they just don't like or understand tech. Tech has been the space program of our generation.
We now carry devices in our pockets that put more information at our fingertips than entire civilizations could access throughout all of human history. Mobile payments have enabled entrepreneurial capitalism in impoverished parts of the world. Anywhere we are, we can get a map of our location and directions to anywhere we want to go.
The scale and technology that makes remote work even possible for much of the population didn’t even exist a decade ago. Some pieces existed but they never would have scaled the way we needed them to. If you didn’t lose your job during the pandemic, you ought to be grateful to the major cloud providers for the fact that your video conferencing software was able to function while you and almost everyone else were piling onto it. You should also be grateful there were multiple delivery companies able to bring you groceries and restaurant food when you weren’t allowed to leave the house. I know restaurants are grateful for the delivery services — so many more would have gone out of business if in-person transactions were the only way to sell their product!
Anyone who owned a total market index fund in the past decade has benefitted massively from the success of big tech, including most pension funds, university endowments, and many individuals. The creation of wealth has been enormous in scale and enormously socially beneficial.
VCs made all those good things possible and if we also get dog-walking services and NFTs of monkeys that's a small price to pay.
- breck 4y ago> Are we supposed to blame people for putting money in a bank that had a solid track record since the 1980s YES! The $250K limit was literally in 100pt font (https://twitter.com/breckyunits/status/1635356025175027712 https://twitter.com/breckyunits/status/1635356025175027712). Amounts above that were at risk! Instead the government just ignored that, on a whim. This wasn't even in the fine print! Can you explain to me now what rules I can and cannot pay attention to? I can't.
- twblalock 4y agoOnly 60% of deposits in the US are insured and many other businesses are doing the same thing in many other banks right now! Would people be screaming about VCs if a different regional bank that serves a different business community failed for the same reason (which could totally still happen this week)? If the government didn't step it they would be ignoring the purpose of the FDIC. The purpose of the FDIC is to protect the banking system from runs and systemic risk. Deposit insurance happens to be the normal mechanism for doing that. When the FDIC realizes that $250k insurance is not enough to stem systemic risk, should they just forget about their mission and let the world burn?
- kristjansson 4y agoFDICs remit is maximal recovery for depositors and stability for the system, not just 250k and a pat on the back. 250k is the absolute least a large depositor can recover in the event of a failure. Holding more than that is not some moral failure we should be crucifying businesses.
- breck 4y agoRight. And it would have been awesome if they were able to recover 100% for depositors (even over 250K)—the honest way. Instead we had whiners and panic peddlers get their 100% the dishonest way. I would much rather have everyone take a couple % haircut than reward that kind of behavior.
- rexreed 4y agoYou might not be familiar with this key component of the SVB collapse story: https://www.msn.com/en-us/money/other/svb-collaps-peter-thiel-s-role-scrutinized-as-spark-of-bank-run/ar-AA18zMlF https://www.msn.com/en-us/money/other/svb-collaps-peter-thie... It does seem that VCs are not just a convenient scapegoat, but a big part of the story.
- twblalock 4y agoThe first person to pull money out of a failing bank is always going to get blamed, but they didn't do anything different than the others who pulled money. What was Thiel supposed to do, keep quiet about the problems at the bank and hope nobody else noticed? Then some other guy can be first to withdraw and take the blame, while Thiel gets soaked? Or maybe nothing happens, and the bank takes on even more deposits and fails even more spectacularly a year from now, and then people blame Thiel because he knew back in 2023 and didn't tell anyone?
- rexreed 4y agoI'm fairly certain that's how a bank run operates, and what we have here is a bank run. Each individual person who withdraws isn't to blame, but it's the collective actions that cause the problem. In fact, all that is needed to cause a bank run is just the idea / notion of instability. Once it gets into people's heads that something is unstable, it will be made to be so, even if all that was needed was calmness. Probably hitting the panic button wasn't the best move.
- twblalock 4y agoOk, what would you do if you were a board member of a number of companies and you found out that the bank they were using was financially unsound and couldn't process normal withdrawals?