Last week’s collapse of the Silicon Valley Bank gets more interesting with each revelation. But one of them is probably not that it was “woke.”
Contrary to rumor, I see no real evidence that SVB gave millions to Black Lives Matter. The bank did pledge $50 million towards an internal program dubbed “Access to Innovation.” This, we are told, “sought to connect women, Black people, and Latinos with startup funding, networking, and leadership development in the venture capitalist ecosystem.”
Sounds great in a press release, though what it has to do with making profits is a bit hard to determine.
Very feel-good, not very bottom-line.
And that’s where the bank failed, on the bottom line.
Its clientele was concentrated in one industry, which has been hit by rising interest rates. Thus stressed, it was exceptionally prone to “bank run” pressures. Its core asset class was long-term Treasury Bonds, whose value decreased with rising interest rates — and these were not hedged.
As Forbes put it, “Whether it was fully or semi-deliberate, Silicon Valley Bank was betting heavily on interest rates not rising.”
An extremely bad bet.
But you can see why the bankers would make it, right? Why wouldn’t they expect the giveaway mentality of Zero Interest Rates Forever?
Their hopes dashed, they nevertheless turned to their friends . . . in power. The Biden Administration that failed to keep interest rates down then pledged to cover SVB’s clients — the super-rich corporations that true progressive Democrats pretend to hate for all their “profits” and “under-taxed” income — well above the FDIC-insured levels.*
We may learn real data about the banks’ wokeness levels, rather than mere rumor, but the bedrock truth reveals itself as all-too-familiar: it’s all about monetary policy.
That is, the “woke” ideas of a century ago, when the Progressives’ beloved Federal Reserve was created.
This is Common Sense. I’m Paul Jacob.
* Like Signature Bank, which was closed on Sunday, the overwhelming bulk of SVB’s deposits were uninsured by FDIC.
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3 replies on “Old Woke, Not New”
SVB is a disaster! But this disaster has a direct connection to the raising of interest rates by the Federal Reserve. The Fed won’t be happy until millions are unemployed and inflation is 2%! That could lead to unemployment as high as 7.5%. Hopefully, the Fed will come to their senses.
Pam, prices — including the price of borrowing money — cannot sustainably be just whatever you want them to be.
The Federal Reserve should not have been monetizing the Federal deficits nor otherwise acting to keep interest rates artificially low in the short run, and these actions made unusually high interest rates inevitable in the longer run.
Just how great those increases must be only got and gets worse with delay.
And the officials of SVB chose not to think about the inevitability of those increases.
Monetary policy is the root cause of the bank’s troubles, but SVB also had ample warning that interest rates might rise. It’s a classic Fed response to high inflation. Biden’s war on energy led to the rise in energy costs, because Biden deliberately constricted supply. Cheap energy is not a luxury. It’s a necessity in the modern world. At the end of 2021 inflation was at or near six percent, up from 1.4%. In one year inflation rate tripled. How much warning did SVB need?