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Don’t Drive People Away with SVB Fallout
Many are conflating the woke management and staff of Silicon Valley Bank with the SVB’s depositors. Don’t.
There’s been voicing of assumptions about the political leanings of the technology start-ups that have accounts with SVB, which suggest gross ignorance about the nature of start-ups and entrepreneurs. Just because the Bay Area is woker-than-thou and has so many start-ups, don’t assume all start-ups are like this, or all there. Doing so will turn away persuadables. The medium age for entrepreneurs is now 40s to 50s. While the Tech-Bro culture is real and a part of Start-Up World, it’s far from the whole thing.
Instead, focus on the fact that this is a classic real-world example of the dangers to everyone from Woke Corporations. The DIE focus on box-checking for certain Left-Wing preferred characteristics (Affirmative Action by another name) means that the best candidates may not be in the critical jobs. Over the weekend, I have concluded that SVB’s Risk Management should have seen this problem coming and done something a lot sooner.
Did they fail because they were distracted with ESG and DIE initiatives? Did they fail because senior management weren’t the best people, but rather too many DIE-favorable candidates? I don’t know. But I have increasing suspicions, and at this point, these are reasonable questions to ask. Make DIE radioactive by showing how it hurts those it purports to help (to paraphrase the Great Thomas Sowell).
For example, if you see a Chief Risk Officer whose LinkedIn profile has anything Woke in it, and is not a straight South-Asian, East-Asian, or White Male, you’re going to question whether that person is a diversity hire, and not the best. Woke is a new variation on the old boys’ club. Unless an individual is one of the disfavored categories (i.e., Straight White Male/South-Asian/East-Asian), they are suspect.
Sure, Gary Becker was a White Male, but his actions showed he was woke. I’m referring to the absence of such red flags.
As I’m preparing to pull 100% of our business from SVB tomorrow morning, I am performing a number of risk analyses of the banks I am moving to. And the above is one of them. I’m fortunate that I have the opportunity to do so. I wasn’t owed this make-whole by the FDIC/Treasury/Fed, but I’m glad it happened for my company’s sake. I’m going to take it and not assume it’ll happen the next time.
Once burned, twice shy.
Published in Finance
I have read a similar report in several places. This is from the NY Post:
“Get Woke, go broke” seems to be growing.
You seem to be saying opposite things here, although I admit that’s heavy on “seem”.
“Make them radioactive” is what we do when we (presumably) conflate the patrons of a visibly woke establishment with the woke-ness of the establishment. Your credit is of course good with *us* sir, but in general, that’s a better betting line than the status quo, yes?
On the other hand, I had to change some airline tickets yesterday, and at the United.com website, the “bottom line” (seriously keep scrolling) is a “Chief Trash Officer.” I figured that’s the guy who cleans up all the woke manure, but nooOOoo.
So which bank you moving to? Did not see a reference. SVB may have impacted a very wealthy company am suing so curious if it survives. All our money in BofA. Assume it will be one of the last to go down. But then I am an optimist.
Most economists believe that market discipline prevents bad ideas from taking hold in businesses. A wise, but much-reviled economist famously said, “Markets can remain irrational longer than you can remain solvent.”
We use BoA for direct deposit stuff, ATM and other day to day transactions and have investment money elsewhere.
BoA is as “woke” (I really wish there was a more accurate word) as the rest of them. They are very very woke. Very. The difference in operational risk is in some fundamentals: SVB has a small(ish) number of VERY BIG depositors and fewer average retail or small-er commercial depositors. BoA has millions of despositors of all sizes. The % of VERY BIG is smaller, so if a bunch of them took off there would be many more little guys/gals to balance it out. They are diversified as to industry they back – tech and wineries are pretty cyclical and high risk. And SVB fell in love with bitcoin.
And – they had no risk manager to challenge the asset allocation. They believed Powell when he said inflation would be transitory and were long on assets and short on liabilities. They could have sold their underwater treasuries earlier (smaller loss) or accepted they were in trouble and made the capital call sooner (CEO probably didn’t want to look stupid to his pals.)
I think all industries are infested with diversity and racist ideology and are in thrall to the government.
How did anybody actually buy the transitory story? Where did they think the trillions of magic dollars would go?
Yet, a lot of people must have bought it, or the securities that SVB purchased wouldn’t have been trading at the prices they were trading at.
1.6% for a 10-year maturity…a substantial number of people must have thought that was a reasonable deal.
Of course, if there is a severe and long-lasting recession, with deflation, it may retroactively turn out to have actually *been* a good deal, assuming one didn’t need the money in the interim.
Many years ago, I was a rather junior member of a team doing a tenant-sponsored conversion of a large rental property in DC. Part of the deal required use of DC’s generous program of downpayment assistance to first-time buyers to make the numbers work. We showed up at the appointed time at the appropriate DC agency for a meeting with six or eight friendly people who did not have a clue about the specifics of the program, how it works or anything related to our project. But they thought it sounded good. Then we were ushered into a smaller office in the back where an older white guy produced the paperwork, and explained the numbers and processes and actually got it done.
The whole thing was like some post-colonial government in which transfer of power did not result in a corresponding transfer of competence. Empty ritual, empty titles, and a hidden hand.
Nelson Mandala favored reconciliation with the white minority as part of a remarkable moral vision but also out of a practical recognition that the country needed the intellectual capital that white flight would take away from the country.
The American woke are too dumb to keep that old white guy in the back room (or in the cockpit or surgical suite) to make things continue to work even as titles and incomes are redistributed. In order for tech companies or banks to provide superfluous people-skill jobs and vacuous titles to a lot of employees who think math is icky or racist, they will need a backroom where some male Asians and Jews actually crunch the numbers. But if they close even that back room, then the whole economy goes third world in a heartbeat.
Maybe they didn’t actually buy it, but figured it gave them cover for what they wanted to do. That’s just a guess.
And if that older white guy in the back room just retires, they have nobody to replace him.
The Chief risk officer in SVP has all kinds of wokeness in her profile and only mentions Risk compliance as a job title. Mucho red flag.
I would argue that even if someone mentions their race/ethnicity or straightness they may be someone to shy away from.
SVB chose to treat their MBS as long term investments held to maturity. Where they failed, they did not hedge the risk their bonds would decline in value if interest rates went up.
The very thing a Risk management person would do, were they not consumed with LGBTQ IA-E-I-E-I-O
They appeared to have the diversity part down everywhere but where it mattered, as in their portfolio.
No kidding. But lots of low interest rate ESG type bond funds. Great job.
What SVB, Silvergate and Signature had in common was a clientele managing what’s been previously called ‘hot money’. That is, it can and will be moved very quickly based on information and market trends. Startup CFOs (as an example) can pull out millions with one wire transfer and will do it if they get a whiff that the risks are increasing. Same for those managing crypto portfolios.
Contrast that to (for instance) a BofA that has much larger fraction of ordinary retail accounts, who lack the knowledge or facility to do large moves, and aren’t tapped into the same market information sources. Right now it looks like the rout has been stopped from moving into the latter category. If that wall falls, then we will really be in the ****.
Saw a great meme urging people to form long lines at the banks just to withdraw $20. Let the panic be on the other side of the counter. Tee-hee!
I hope the OP does a better job of vetting his banking partner next time.
Apparently only 1 person on the Board of Directors of SVB had Banking experience. The chief experience / skill the rest had was political connections.
Story here.