The collapse of Silicon Valley Bank is frighteningly easy to understand. One doesn’t need a familiarity with arcane terms like derivatives or collateralized debt obligations to make sense of it all but rather a suspension of disbelief that an executive being paid $9 million a year could be so stupid and individuals reputed to be some of America’s brightest precipitated a run on their bank of choice.

Fortunately for the geniuses responsible for pushing SVB over the edge they are major contributors to the Democratic Party so they don’t have to wallow in the doo-doo they created. Despite what Treasury Secretary Janet Yellen says, SVB’s customers got a bailout, and John and Jane Q. Public are ultimately going to fund it.

It’s all part of the great wealth transfer in America, where working class persons are expected to make the rich whole on their investments, subsidize the purchase of their luxury electric vehicles, and be grateful for a job working in a lithium battery plant possibly jeopardizing their health and paying near poverty wages.

Allow me to explain the SVB story in lay person’s terms.

SVB catered to tech startups, but these entrepreneurs weren’t running bootstrap companies like the PR firm I founded in the late 90s and shared office space in New York’s garment district with a seamstress and some intimidating goons who said they were in the moving business. SVB’s clients were backed by wealthy venture capital firms like Andreessen Horowitz, whose co-founder Mark Andreessen and other billionaires threw a hissy fit when they discovered there were plans to build condos fetching $4 million a unit in their billionaire Bay area hamlet called Atherton.  

Another VC firm you might have heard of is Sequoia – they were among the folks who funded the former crypto king Sam Bankman Fried without much due diligence. SBK and his cronies didn’t operate out of a dilapidated building with a creaky elevator but rather a luxury penthouse in the Bahamas. You might recall when SBK was being hailed a genius, he had the good sense to grease the skids in Washington, where he developed a certain fondness and affection for Democrats.

SVB was the bank of choice for tech geeks because it wasn’t some greedy bank focused solely on profits like the one Jamie Dimon runs over at Chase. SVB was committed to doing good for the world, and employed people like Jay Ersapah, the boss of financial risk management at SVB’s UK branch. Ersapah wasn’t your stereotypical risk management person hovering over Excel spreadsheets 24/7, but was involved in other initiatives such as the company’s first month-long Pride campaign and a new blog emphasizing mental health awareness for LGBTQ+ youth.

For a time, SVB’s tech entrepreneurs were so flush with cash the money flowed like a veritable Niagara Falls into the bank. The Santa Clara-based lender saw total deposits increase more than three-fold to nearly $200 billion by March 2022, up from about $60 billion two years earlier.

Banks make their money paying the lowest possible fees to attract deposits and then lending out that money at higher fees. Unfortunately, there wasn’t much loan demand for all SVB’s deposits moolah, so the bank bought higher-yielding long-term government bonds and 10-year mortgage loans paying 1.5%, instead of short-term Treasury bills paying a measly 0.25%. SVB never figured that their tech customers might have a sudden need for their cash, but they did, and the bank had to sell a big portion of its bond portfolio and take a massive loss.

Word spread like a California wildfire that SVB needed more capital, the VCs yelled “fire,” and told their portfolio companies to withdraw their money immediately. Unfortunately, some weren’t fast enough tapping their iPhones, which is how techies manage their funds these days.

The CEO of SVB was Greg Becker, who received $10 million in 2021 compensation. Let me put that in perspective: David McKay, president and CEO of Royal Bank of Canada, who oversees a global consumer and investment banking operation, was paid the U.S. equivalent of $10 million in 2021. RBC has the U.S. equivalent of one trillion US dollars in assets. RBC operates in 36 countries and is one of the world’s largest when measured in terms of market capitalization. It also is one of the best managed.

SVB at year-end 2022 had $212 billion in assets and operated in nine countries.

Mary John Miller/SVB photo

Becker had some heavy hitters on his board, including Mary John Miller, who according to the company’s news release served under two presidents at the U.S. Treasury, from her Senate confirmation as Assistant Secretary for Financial Markets in February 2010 through her subsequent confirmation as Under Secretary of Domestic Finance in March 2012. According to SVB’s release, Miller was responsible “for managing the federal debt, overseeing financial regulatory reforms, overseeing the fiscal operations of the U.S. government, and advising the Secretary on Treasury’s policies and guidance in these areas.”

SVB didn’t have a chief risk officer for most of 2022, but in early January the bank announced it hired Kim Olson as its chief credit officer.  According to the New York Post, before joining the tech lender, Olson had a stint in a senior risk management role at Deutsche Bank during the Great Recession, a detail SVB omitted when announcing Olson’s appointment.

In 2017, Deutsche Bank was forced to pay a massive $7.2 billion penalty after admitting it lied to investors about its mortgage-backed securities — the collapse contributed to the housing market’s implosion during the financial crisis.

What SVB did mention was that Olson began her career at the Federal Reserve Bank of New York, where over a period of 10 years she held a variety of senior policy, regulatory and examination roles in banking supervision.

Given her background, it seems reasonable to assume that Olson realized that SVB had some serious risk when she came on board. Perhaps it was just a coincidence, but weeks after Olson joined, Becker set up a trading plan allowing him to sell a tidy sum of SVB shares and pocketing $3.6 million.

On Sunday night, U.S. regulators disclosed they seized Signature Bank, one of the financial institutions of choice for the cryptocurrency crowd, and that they would guarantee deposits of SVB and Signature exceeding the federally insured limit of $250,000. The regulators said that taxpayers weren’t on the hook for the bailout because any losses to the government’s insurance fund would be recovered in a special assessment on banks.

Chase’s Jamie Dimon and his banking CEO cronies aren’t going to eat the cost of any assessment. Consumers on the bottom rung of the economic food chain will pay those costs in the form of higher usurious ATM, checking, credit card, and other fees the banks will concoct to suck more financial blood out of their customers.

The VCs backing SVB’s clients have the money to make their portfolio companies whole, but they’d rather the U.S. government pick up the tab. The Bay area is Tesla’s biggest market, and no doubt many of SVB’s entrepreneurial clients are also driving Elon Musk’s luxury vehicles, on which they also likely received generous taxpayer subsidies.

Meanwhile, defaults on subprime auto loans, which are obscenely high interest rate loans made to poor and lower-income people, are soaring. At the end of last year, more subprime borrowers were 60 days or more behind on their auto loans than at any point since the Great Recession in 2009. Rest assured, little, if anything, will be done to prevent these people from losing their cars.

Ford hopes to use tech to make the repo process simpler. The company has filed a patent application for the automaker to repossess vehicles if someone falls behind in their monthly payments. The automaker also struck a controversial deal whereby it will build and operate a lithium battery plant on fertile farmland in Marshall, MI, using technology licensed from a company based in Communist China. The deal will allow Ford’s made-in-Mexico electric Mustangs to qualify for lucrative sales tax breaks.

Michigan Gov. Gretchen Whitmer, who President Biden seriously considered as his 2020 running mate and is a rising star in the Democratic party, gave Ford more than $1 billion in taxpayer subsidies. Although local Marshall residents don’t want Ford’s Chinese technology plant in their region, Whitmer says Ford’s battery plant jobs are great for the rural farming community. The jobs will pay on average about $45,136 a year, 15% less than the median household income in Marshall’s county. That should help drive down wages in the area.

Whitmer’s praise for the Ford battery plant jobs notwithstanding, I’m certain her two daughters currently attending the University of Michigan won’t be applying for them.

Joe Biden likes to present himself as the champion of the working class, as does the Democratic party. At the end of the day, he and his political colleagues serve the best interests of the wealthy, as do Republicans. For all intents and purposes, America has morphed into a one- party country.

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