If while writing this post a fire broke out downstairs in my kitchen and I was burned to death because I continued pounding away on my keyboard and ignored the flames engulfing me, it would be mistaken to say that blogging killed me. The accurate explanation would be that I died because of my misguided focus on imparting my wisdom rather than recognize and respond to the very clear hazards surrounding me. Many people would argue that my misplaced priorities and focus were foolish, particularly if my home smoke alarms were sounding loudly.
Those who work at the New York Times or teach at Harvard Business School see things differently.
The Times, and a good swath of the entrenched media, are working overtime arguing that accusations from “conservative” and “right wing” critics that Silicon Valley Bank failed because of the company’s commitment to diversity, equity, and inclusion (DEI) and environmental, social, and governance (ESG) metrics are false. Linda Qui, a “fact-check reporter” with the Times assured readers there’s no room for any debate on the issue and found some seemingly well-credentialed people to support her arguments.
George Serafeim, a professor at Harvard Business School, told Qui that blaming the collapse on such initiatives reflected either “a complete lack of understanding of how banks work or the intentional misattribution of causality for the bank’s failure.” New York Times columnist Paul Krugman, a Princeton professor who was awarded a Nobel Prize in economics, also railed about the ignorance of those who would blame wokeness on SVB’s collapse.
“On the right side of the political spectrum, many have quickly rallied around the claim that S.V.B. failed because it was excessively woke — which is only marginally less ludicrous than claiming that wokeness somehow causes train derailments,” Krugman argued in a March 16 column. “So the talk about wokeness tells us nothing about bank failures — but a lot about the intellectual and moral bankruptcy of the modern American right.”
I’d normally be too cowered to publicly debate a Harvard Business School professor and a Nobel Laureate, but banking is something I know a little bit about, having worked as a senior editor at American Banker for several years and prior to that covered banking as a reporter with major U.S. and Canadian newspapers. At the end of the day, a bank’s primary responsibility is risk management and to ensure that its depositors have readily available access to their money.
One can argue about a bank’s other obligations, including reflecting the values of its depositors and furthering the interests of the community it serves, but the collapse of Silicon Valley Bank illustrated that what even the loudest virtue signalers care most about at the end of the day are themselves and their money.
Based on what’s been reported, SVB wasn’t all that sick; the bank foolishly locked up its depositors’ money in long-term investments that went south because of rising interest rates. Had mega wealthy venture capitalists not squealed like the financial pigs they are on Twitter and social media about the urgent need for SVB customers to withdraw their money, the bank likely could have survived.
What frightened the VC pig pen was the disclosure that SVB had to sell a chunk of its investments at a huge loss to meet an unexpected increase in withdrawals, akin to having to pay a huge penalty cashing out a CD early to cover unexpected payments. The VCs were afraid their portfolio companies might lose some of the generous funding they showered on them, which in turn could diminish the value of the VC’s investments.
The VCs cared not one iota that SVB supposedly upheld the values they and their portfolio companies claim to hold most dear. What also has emerged that SVB was repeatedly warned that financial flames were engulfing the bank, but management was more focused on its woke priorities.
I learned about the fire warnings reading this article by Jeanna Smialek, the New York Times’ banking writer.
Here are the first five paragraphs from Smialek’s story:
Silicon Valley Bank’s risky practices were on the Federal Reserve’s radar for more than a year — an awareness that proved insufficient to stop the bank’s demise.
The Fed repeatedly warned the bank that it had problems, according to a person familiar with the matter.
In 2021, a Fed review of the growing bank found serious weaknesses in how it was handling key risks. Supervisors at the Federal Reserve Bank of San Francisco, which oversaw Silicon Valley Bank, issued six citations. Those warnings, known as “matters requiring attention” and “matters requiring immediate attention,” flagged that the firm was doing a bad job of ensuring that it would have enough easy-to-tap cash on hand in the event of trouble.
But the bank did not fix its vulnerabilities. By July 2022, Silicon Valley Bank was in a full supervisory review — getting a more careful look — and was ultimately rated deficient for governance and controls. It was placed under a set of restrictions that prevented it from growing through acquisitions. Last autumn, staff members from the San Francisco Fed met with senior leaders at the firm to talk about their ability to gain access to enough cash in a crisis and possible exposure to losses as interest rates rose.
It became clear to the Fed that the firm was using bad models to determine how its business would fare as the central bank raised rates: Its leaders were assuming that higher interest revenue would substantially help their financial situation as rates went up, but that was out of step with reality.
Smialek went on to provide more convincing evidence that regulators knew Silicon Valley Bank was in trouble. Given Smialek’s multiple references to the San Francisco Fed, she notably didn’t make mention of the executive responsible for overseeing the prestigious organization.
The New York Post thought that executive was deserving of a profile.
The San Francisco Fed is headed by a woman named Mary Daly. The Post had some details about Daly that are a tad inconvenient for the New York Times’ and the entrenched media’s preferred narratives. Allow me to share a few snippets, which I have edited.
A protege of Treasury Secretary Janet Yellen and short-list candidate for Federal Reserve vice chair, Daly was supposed to be supervising Silicon Valley Bank but apparently was too busy playing politics and pushing woke agendas to regulate rogue banks like SVB, the second-biggest bank failure on record.
Daly had other priorities, including climate change, George Floyd and Black Lives Matter, inequities between blacks and whites, LGBTQ+ rights and a host of other woke social-justice issues that had nothing to do with banking and finance.
Daly’s Fed bio gushes she’s committed to “understanding the economic and financial risks of climate change and inequities.” In a recent LinkedIn post, Daly appeared sidetracked by racial justice, writing: “What Black voices have I lifted up? Equity & inclusion begins with me. #GeorgeFloyd.” She also posted selfies with local Black Lives Matter activists.
As is common in Silicon Valley where people like to share personal details about themselves, Daly notes in her Fed bio that she’s a native of Ballwin, Missouri, and lives in Oakland, California, with her wife Shelly.
The Post also reported that “SVB’s board is packed with Trump-hating Hillary, Biden and Obama donors obsessed with “equity and diversity.” One director, Elizabeth “Busy” Burr, argued for hiring underrepresented “people of color” in banking to counter “four years of a president who unleashed a tide of racism and white supremacy.”
“It’s not enough to just report the numbers,” she said. “Instead, we need to demand a deep look at company culture.”
SVB CEO Greg Becker sat on the San Francisco Fed’s board, so one might expect that supervisory risk management was one of his priorities and concerns. Not on your life. SVB was without a chief risk officer for most of 2022, when interest rates were rising and impairing the value of the bank’s bond holdings. Within weeks of a new CRO coming on board, Becker laid the regulatory groundwork that allowed him to sell $3.6 million in SVB stock just weeks before the bank’s collapse.
SVB had a risk expert in London named Jay Ersapah, who the New York Post reported also liked to volunteer personal details to colleagues.
“The phrase ‘You can’t be what you can’t see’ resonates with me,’” Ersapah was quoted as saying on the company website. “As a queer person of color and a first-generation immigrant from a working-class background, there were not many role models for me to ‘see’ growing up.”
According to the Post, Ersapah, launched initiatives such as the company’s first month-long Pride campaign and a new blog emphasizing mental health awareness for LGBTQ+ youth. Ersapah’s efforts as the company’s European LGBTQIA+ Employee Resource Group co-chair earned her a spot on SVB’s “outstanding LGBT+ Role Model Lists 2022,” just four months before the bank was shut down by federal authorities over liquidity fears.
I’ve yet to find any mentions of SVB’s internal awards for risk management.