SVB
So, Dax, this SUV thing, how close were we to just total meltdown?
Speaker 2:You know, it was pretty dramatic for a few days. But in the end, I think it was actually kind of a boring run of the mill situation, which is exactly what you would want from the banking sector and and the government. I actually think it was a great example of a rare example of our government working extremely well. But I think that might have gotten lost a little bit in the details.
Speaker 1:Yeah. And and quickly. I mean, we thought we'd do a podcast today. Didn't know it'd all be sort of resolved at this point.
Speaker 2:Yeah. Exactly. I think the news is just coming out really fast. I think it was actually happening so fast. I was seeing the reactions kind of delayed on Twitter.
Speaker 2:I saw like, when the news came out, you know, of how they're gonna resolve it, they were already, you know, going down that path, but there were still people reacting to, like, the initial information. So that's how quickly they got done. The news cycle couldn't even even keep up.
Speaker 1:Yeah. So you said that there's been sort of some lost in in translation here, like people not realizing that this was actually handled really well. Could you talk about what reactions you've seen where people are missing that?
Speaker 2:Yeah. Maybe we should just talk a little bit about what exactly happened to summarize it. Yes. So when was, like, last Thursday. Right?
Speaker 2:There was effectively a bank run that happened on Silicon Valley Bank, which is a bank that is, like, often used by startups in the tech industry. There was news that they lost a bunch of money on investments, which with rising interest rates, like, it's just kinda bound to happen with with some of these banks. And that concern their concern over that spiraled into a full panic of people pulling their money out so they cannot shut down operations, and then the FTC came in and and took over. So I think the initial reactions were, oh, no. This is terrible.
Speaker 2:A bank has failed. Then I think there was a lot of people had memories back in 2008 of being like, oh, great. Now the government is gonna bail out, you know, these rich, like, Silicon Valley investors, VCs, etcetera. Because if there was a big VC crowd making a bunch of noise about this, which is also kind of annoying. Yeah.
Speaker 2:I wanna talk about that too. Keep going. So it it was I think a lot of reactions were around this political angle of they kind of bucketed this as as a into another example of a bunch of rich people gambled and lost money, and they want the government to make them whole, which has happened a lot in the past historically. But this situation wasn't exactly that. I think that's kind of what was lost in just in the chaos or everything that was going on.
Speaker 1:Yeah. So I I think people hear Silicon Valley Bank, and they think, like, startups and they think venture capitalists and, like, all these people are doing really well. But could you talk about, like this was not a malfeasance or whatever. Like, this was not people gambling in ways that are just super risky. Like, this is sort of like normal bank operations, unfortunate circumstances, and then a lot of fear.
Speaker 1:But the people that, like, ultimately would have been hurt so badly if the government didn't bail it out were not just, like, rich people. It's all the people that work for startups. Right? I mean, could you kind of break that down for me?
Speaker 2:Yeah. I think the reality is that sometimes businesses fail. You know, I've I've only worked at businesses that have failed. But thankfully, I've only worked in industries where when a business I am building fails, it doesn't really, you know, ruin anyone's lives. It's maybe annoying for someone to switch to something else if they were using my product.
Speaker 2:But sometimes banks fail just like any other company. A business a bank is just a business that's run by people that can sometimes fail. But when banks fail, it kinda creates a lot of chaos for their customers. And that's what the situation was. There were people that were running a bank who, for whatever reason, had failed.
Speaker 2:Those people, I understand you don't want to, like, save them because they kinda ran this thing and it failed and they should kind of pay the price or, like, the system should should learn the lesson and the data point that exists from their failure. But the customers were just people that deposited their money in the bank. When any of us deposit our money in a bank, we're not gonna go review the bank's balance sheet and like keep up with the quarterly meetings to make sure that the bank is operating the way we want them to. Like, none of us really have the overhead. Now it's not the time to manage that overhead.
Speaker 2:So anyone that had their money deposited there, again, just like any other business, you know, you're just you're just a customer. All of a sudden, this, you know, this business is is starting to fail. That's actually why we have a government, right, when there are situations where a random person just gets hurt. It could have been you, me, like, the fact that I didn't have my money in SVB is effectively random. Like, I'm not like some genius that knew not to have my money in there.
Speaker 2:So the people that did get hit, it is kinda random. And the people and in this case, the people that were were hit were people that, you know, a lot of startups that employed other people. So just having them, you know, fail with the bank doesn't really make sense. You know, they weren't in charge of running the bank or operating the bank just like none of us really are paying attention to our own personal bank operations.
Speaker 1:Yeah. So a few things I wanna unpack. One, I guess the unique thing about SVB is a lot of the customers being startups have huge deposits. Like, they have huge account balances because they've raised $10,000,000 in venture capital or whatever. Right?
Speaker 1:So normal bank fall fails with just, like, normal consumer accounts. Like, a lot of them are gonna be under that FDIC insurance, the $250,000 limit. But in this case, I think I read it was, like, 95% of deposits at SVB would have would have been lost, you know, if this weren't if somehow the government didn't step in, somebody didn't make them whole because all these huge balances at startups. Is that all accurate? This was something that
Speaker 2:was kind of lost in in some of the chaos. The money didn't vanish. There wasn't a bunch of money that someone gambled away, and it was all gone. It was unclear how much of it was readily available. They did lose some, but, you know, it it could have just been, like, two or 3% that kinda causes this panic.
Speaker 2:So making the depositors whole didn't have to look like the government coming in and filling in, like, a $200,000,000,000 gap. And in fact, that's not what happened. If you read the the document that the FDIC put out, it looks like they were able to find a buyer for for the gap and for all the debts and all the assets that SVB did that would make all the depositors whole without the government even having to spend anything, any taxpayer money or anything. They do have, a backup fund in case there are, like, short term gaps while they're while this stuff gets figured out. But this is a really boring part of our government that none of us really I think we often see the beginnings of things like this, but we never really hear about the endings.
Speaker 2:Right? One of my favorite stats is the Bernie Madoff situation. When that went down, we all heard, okay, he stole all this money and this was all gone. And it took them years to figure it all out. And not many of us heard the ending, which is I think they recovered, like, 85% or something.
Speaker 2:It was some, like, crazy amount of money that they recovered. So ultimately, and they also even paid out lease to most. So if you they, like, sort of the investors by who had the lease with them and paid those out whole first. Yeah. And then some of the people that had more with them, you know, they didn't get percentage wise, they they didn't get all of it back, but, you know, it was it was a good way to do it.
Speaker 2:So they just tracked it all down, and then and they made it work. It takes time, but this is, the thing that they're good at. They kinda kill it when it comes to this type of thing.
Speaker 1:So I didn't know that that the the Madoff situation, most of those people were made whole, I guess. That's that's good. Yeah. Because you you heard all those stories when when the news was breaking about, you know, bus drivers losing their life savings, that whole thing. Yeah.
Speaker 1:But you you don't. You don't hear the ending. So I wanna talk about the takes. You said oh, man. Now that I know we're trying not to cut so bad.
Speaker 1:Just some of the people on Twitter have been upset that, like, that people are, like, expressing they shouldn't be on the hook when a bank fails. Like, it's not their responsibility to sort of split their bank their money across several banks or several accounts to stand to the limit. I think it's totally reasonable to think that we shouldn't expect banks to fail. Like, the I guess the takes that bother me on Twitter I've seen are like, it's a risky thing to put your money in a bank. You should know that.
Speaker 1:Like, really? Like, is it? I I don't think so. Is that does that make you mad? Like, when I see those takes, it makes me mad.
Speaker 2:Yeah. It's like, let's kinda be reasonable and kinda practical. You don't really want every single person in the country thinking that hard about whether they trust their money going into a bank. And it's kind of an it's kind of an unfounded fear. Yes.
Speaker 2:The process of running a bank is very complicated and some like, the FDIC closes a bunch of banks every year just like this. It just happens to be a very big one. It is tricky. But because of that, it's also one of the most heavily regulated industries ever. If you look at what banks looked like a hundred years ago in this country, that was a risky time to put money in banks.
Speaker 2:Like, that would like, anything it kinda is like what crypto is today. Like, banks were going under left and right. They're making their own currencies effectively. Like, all this crazy stuff was happening. And all these regulations we've discovered were and put into place over the past, you know, hundred years or so lead to a pretty good system.
Speaker 2:A system in which a bank having a situation that, I guess, Phoebe did is effectively resolved in in three days over a weekend. Right? That's really incredible. It's like no other part of our government. If something goes wrong in any other part of our government, like, you're not getting a resolution in three days.
Speaker 2:Right? No. Right. This is this is a rare part of the system that works really well. It's not risky.
Speaker 2:It's there is complications running a bank, but there's a countermeasure here with, with all regulations in the way the government operates and how all the insurance stuff is structured with FDIC. It's a miracle that all works really well. And that's kinda what's exciting about this situation. We can kinda get to witness that in a tangible way.
Speaker 1:And do you think, had they not acted this quickly and we had gone into this week with that all still kinda up in the air, no word from the government or from the whoever, the Federal Reserve, do you think what do you think the outcome would have been? I don't know. Maybe it's dumb to even guess, but I feel like there was an urgency.
Speaker 2:I just couldn't I just can't even imagine that being the case. Like, it was so this this whole organization exists just to react to situations like this. So I just can't even imagine what that would have been like. But, yeah, if they hadn't and I think this is probably still happening to some degree. People are kinda reevaluating where they have their money and maybe, you know, centralizing their money in in less risky banks.
Speaker 2:I personally use all these, like, weird new new banks, but I'm personally not really moving anything around.
Speaker 1:Well, yeah, all the extreme takes I was seeing on Twitter were, like, every regional bank will fail. It'll be just the big four that are too big to fail, left standing, and I don't know how much that's just extreme online speak.
Speaker 2:There definitely is some kind of reaction. The other thing that I saw that was also a little annoying, and I am not gonna I think having looked at the profiles of some of the people saying this, I think I knew what they were doing. Like, they knew what they were doing. It wasn't, like
Speaker 1:You're talking about the founders and people, investors, or whoever that were just trying to,
Speaker 2:like No. Well, that that's another we can talk about. But the thing I was gonna mention were there are a bunch of takes that were like, oh, anyone with more than 250 k doesn't deserve protection from the government, whatever, making it seem like these were individual bank counts that were affected. Yeah. Like, they weren't.
Speaker 2:They weren't individual bank accounts for the most part. They were businesses. Like, yeah, the average person doesn't really need more than that much sitting in a bank account. Only businesses need that much sitting in a bank account because they might, you know, spend that much over the course of three months for their operations. So I think peep that was also a few they kinda were, like, tapping into the this, like, outrage thing that that annoys people.
Speaker 2:So, yeah, I was pretty disappointed to see just, like, the immediate opportunity that people saw to, like, you know, get get attention and get get engagement around that thing. It's just harmful long term. Like, I think a lot of people are gonna walk away from this situation. Again, just hearing the beginning of it, not understanding some of these details, and just remembering this as as yet another situation where something corrupt happened.
Speaker 1:Yeah. Can we talk about the the, like, what's that guy's name? Is it not Founders Fun, but he, like with you? No. It's the guy that worked like it Jason.
Speaker 1:Yeah. Yeah. Worked with Elon Musk on the Twitter stuff. The all caps tweets. Just all the, like, if you don't make this right, the world is going to end.
Speaker 1:There were a lot of those tweets.
Speaker 2:Yeah. It was really annoying. Those I think everyone was joking about the the the I don't really follow him that much. I find that guy really annoying in his whole crew, like Jason something and and David Sachs and a bunch of those, like, VC people. They're kinda always chattering with this stuff.
Speaker 2:People were joking today. I don't think they were joking. They were literally commenting on how they're taking credit for the resolution. They're like
Speaker 1:Oh, really?
Speaker 2:Yeah. In their podcast. Like, they were making a bunch of noise around around this thing. I found it kinda cringey. It was like a bunch of VCs were getting together being like, we are going to make this right.
Speaker 2:Like, we're gonna stand up blah blah blah. And we all know this is a very boring government procedure that is just gonna play out the same way it always plays out. It's just to me, it felt like, wow. They just don't have anything that they need to, like, insert themselves and, like, try to, you know, be relevant.
Speaker 1:I mean, didn't they there's a reason that the run on SVB happened in the first place. Right? Like, was founders or, like, VCs telling all their portcos, founders that they need to pull their money out because well, it didn't sound like, from what I understood, that the SVB underlying issue where they had to raise a little capital am I overstating that saying they had to raise a little capital, or am I understating? Like, it didn't sound like a major catastrophe, and then it was enough to spook whoever it was, Peter Thiel and founder's son. I don't know.
Speaker 1:All those people.
Speaker 2:Yeah. I think they just couldn't immediately find a buyer for it. So that was like, oh, okay. They're screwed. We should pull our money out.
Speaker 2:But, yeah, I I I would guess it was, like, 20% of it was the actual situation and then 80% of it was just from the bank run ensuing bank run that happened. But, yeah, ultimately, I think even just with that initial thing, the FDIC would have probably stepped in because I think you have a limited amount of time to find that hole before before they step in. But yeah, a lot of it was kind of manufactured and engineered. I'm seeing like crazy conspiracy takes on all this stuff where there are compelling, but it just requires these actors to be really smart, which I just I just don't think is the case. But they're like, this was all coordinated so to make it more difficult for the Fed to continue to increase interest rates because now banks are failing.
Speaker 2:And I'm like
Speaker 1:might be
Speaker 2:how it plays out because now the Fed has to think twice. I don't think they're gonna slow down hiking just because of this, but we'll see what they do. But, yeah, like, no one no one is that smart, especially not like a bunch of VC guys with a podcast.
Speaker 1:I'm very biased against VCs, so I gotta be careful not to just say bad things.
Speaker 2:We're gonna ST's gonna raise a series a in six to twelve months, so I might just be screwing
Speaker 1:myself by saying this. Let's stop talking. We just like the good ones. You we know you're out there. You hear us right now?
Speaker 2:You're probably if you're listening, you're probably one of the good ones. Yeah. For sure. Yeah.
Speaker 1:Okay. We're getting way over the top here. So there's a few takes that I would like to hear your take on, your response to. Because my I mean, I'm just much more alarmist, I think. My immediate take in the aftermath was not, oh, wow.
Speaker 1:This was just an example of the government doing the right thing. I just get swayed too much from everything I read online. What'd you think of Simon Wardley's thread? Because he I mean, he's Britain, I think. He's not in The United States, not from The United States.
Speaker 1:He may have a different perspective on it from their politics over there. I don't know. But I wasn't smart enough to understand it. That's why I'm asking you. I didn't understand his thread, and I need you to to make it make sense for me.
Speaker 2:Yeah. I think to summarize his thread, he his take was it was kinda what you were saying earlier that putting your money in a bank is risky. If you claim that it's anything other, you should nationalize the bank, and it shouldn't be a it shouldn't be like this private system. I just don't think it needs to be that black and white. There's there there's options of, like, just complete free market chaos and then, like, completely, you know, like, public nationalized thing.
Speaker 2:Right? I like I said, I think banks are in a really great situation where they are private. So we have the diversity and the benefits that come from, you know, a bunch of different private companies emerging and competing with each other. But you still have a heavy amount of regulation, probably more than probably the top three most, you know, regulated industries. So you don't have the full chaos.
Speaker 2:So I feel like the situation is it's it's great. Like, we found this nice balance between these two extremes. I think he was saying you can't have a balance. It's either one or the other, which I obviously disagree with. And I think he also was missing the point that that the quote everyone keeps tweeting is, like, privatize the gains, socialize the losses, which is a problem.
Speaker 2:To have a good capitalist society, like, you can't do that. You have to let losers lose. And they're kinda bucketing this under that situation of, like, oh, like, these people lost their money and and we're saving them. But this is actually perfect. Like, the statement from the from Jenny Yellen was was exactly what you want.
Speaker 2:They're like, we're not saving the shareholders or the investors in these banks because they they made a bet and they lost money. That's good. Like, they that signal needs to make it back. We're only gonna save the customers, which is exactly the perfect harmony of everything you want. So I think in 02/2008, this isn't exactly what we got.
Speaker 2:So to me, it feels like we learned a little bit in 02/2008, and now, like, we're doing it pretty well. And I feel we're gonna continue to continue to do it well.
Speaker 1:Yeah. I remember the stories. I think it was 2008 when all the stories came out about what happened with all these bailouts, like where the money was actually flowing and executive bonuses and stupid stuff that, like, just I don't know how people can do in that setting and not fear the repercussions. I don't know. Yeah.
Speaker 1:But in this case, all the people I don't know. Who who's an investor in SVB? Like, who are these
Speaker 2:people? They must be super wealthy. Right. Exactly. It's but the thing is it probably is also, like, pension funds that Oh.
Speaker 2:Invested in it, and they're gonna lose money. But they're probably heavily diversified so that, like, one, you know, one blow up. Like, this is not really gonna cause anything. The 2008 thing is also funny because that's another example of all of us hearing the beginning, but not hearing the boring end. I think we all heard that the government was buying all this garbage, quote, unquote, garbage rated investments that these banks lost a bunch of money on.
Speaker 2:So government was like, okay. We'll buy it off you to, you know, to save you. That was kind of upsetting. It turns out those actually weren't garbage. And fast forward ten years, they actually made a ton of money for the government.
Speaker 2:Wow. And the the the Fed actually ended up reinvesting that in a bunch of infrastructure projects and and things like that. So, yeah, this is a just a complicated long term space, more long term than anything we, like, deal with day to day. And these are just, like, the biggest nerds that are in charge of this stuff. Like, they just they they know they know how to do this stuff, and it's really impressive.
Speaker 1:So everything is very complex, and these stories just remind me of that constantly. But how do you keep track of this stuff? Like, how did you hear the end? Because I I would love to be informed and not just hear the big flashy news story and then get outraged and then forget about it. Like, what do you do to stay on top of things?
Speaker 1:You seem very responsible.
Speaker 2:Well, nothing specific. So I think I'm in a kind of a unique situation because my dad is my dad is a software engineer, but he spent most of his as the last half of his career in the finance world. And he's actually a full time day trader now. And he worked at he actually worked at a before he retired and became a day trader, he worked at a company that specifically bought distressed assets. That was their thing.
Speaker 2:So when SVP company like SVP has an issue, they come in and they they're the ones making the pitch to buy the the stuff. So I I just constantly hear the type of thing from him and just hearing, like, we're just not it's just like anyone external talking about the tech industry. Like, you realize, like, they don't really know how all this stuff works. It's kinda similar in finance. It's just as complicated of space with just as many smart people in it.
Speaker 2:It's kinda hard as an outsider to to really keep track or understand it all.
Speaker 1:I have nothing else to say. I'm sorry. Like, I'm just nodding. It's my ankles.
Speaker 2:Yeah. Mean, my answer to your question is there's like, we we just can't
Speaker 1:keep up. No way I can benefit from this. Yeah. I can't keep up. I can't can't if
Speaker 2:you wanna You can't you guys can chat. I'm sure he would like that.
Speaker 1:Okay. Yeah. Well, I don't know anything else about this situation. So I I wasn't expecting it to be so tidied up so quickly. So that's great.
Speaker 1:I'm Yeah. I'm glad. We do have some friends that had funds there. Right? So
Speaker 2:Yeah. I mean, like, it still has to play out fully, but, you know, it's headed headed the right way so far. Yeah. Mainly curious to see if the Fed ends up reacting in terms of their rate hike schedule and and what they have planned. But besides that, it's pretty much a blip, and I think by next week, people probably will have forgotten about it.
Speaker 1:Perfect. Right? When this, podcast episode comes out, it'll be perfect timing just as everyone has forgotten. Remember that thing?
Speaker 2:Yeah. We should rename it to remember that thing.
Speaker 1:And so that's that thing? Yeah. It's because it's always in the past. It's funny. Well, we gotta do another whole episode on interest rates because I hear people say, oh, another interest rate hike, and I don't know what any of it means.
Speaker 1:And I'd love to know because you sound like you know. So that's basically this podcast. It's turned into Dax, teach me things. You smart. That's basically what it is.
Speaker 2:Here's the thing we're running out of stuff. This is, like, the last category of thing that I know about. Oh, no. Like, we did back end stuff, which, you know, you you know about the same as me. Then we did front end stuff, which I knew a little bit more about.
Speaker 2:You know a lot more. Now we're doing finance stuff, and then that's it. I think I was to retire this podcast after that.
Speaker 1:Oh, so we could get into a topic that I know more about, like Oh, that's true. Hang on. All of your audio visual stuff, like, know way more than any of this? Nobody cares. What do you mean?
Speaker 1:I want something cool. Hang on. Not finance. I know a lot about I got nothing. I really can't think of anything.
Speaker 1:The Ozarks? Do you wanna Yeah. You know, do some episodes about the Mark Twain National Forest?
Speaker 2:Well, we never did that nutrition episode we talked about.
Speaker 1:Oh, we gotta do a nutrition episode. I still can't believe you're keto. There's a little teaser.
Speaker 2:I'm not fully keto, but I have keto phases. But
Speaker 1:yeah. Keto phases. I have keto tendencies. I'm not a keto. Okay?
Speaker 1:I just have keto tendencies. Well, that'll be fun because I'm vegan. You're keto. Together, we're as annoying as you can be when it comes to nutrition. That'll be fun.
Speaker 1:Okay. Cool. Well, that's enough for this. See you. See you next.
