Previous month:
March 13, 2023
Next month:
March 15, 2023

SILICON VALLEY BANK: WOKE UGLY IN CALIFORNIA

The short version of the SVB failure: a bad bet on interest rates and maturity mismatches ( borrowing short-term from depositors and lending long-term to corporations, without any interest-rate hedging) ...

Money from venture-capital-fueled companies poured into the bank at a staggering rate. The bank's lending activity could not keep pace with the gusher of money, so surplus funds were invested in safe instruments like government securities and triple-A-rated mortgage-backed securities.

Unfortunately, the Biden regime with its outrageous spending spurred on inflation which provoked the Fed to raise interest rates.  The days of near-zero Fed interest rates and an acceptable securities yield of 2% were over as interest rate yields approached 5%.  Smart people saw the interest rate overhang on the bank's balance sheet and were watching the situation. When the bank attempted to raise $2.25 billion and noted a $1.8 billion loss on securities sales -- the smart people wired their money out of the bank resulting in an unprecedented $42 billion hit on a single day -- and the bank's failure.

Maxine Waters to the rescue...MAXINEMad Max…

Since the 2008 financial crisis, California Representative Maxine “Mad Max” Waters (D-CA) has served on the House Financial Services Committee, chairing the House Financial Services Committee from 2019 to 2023 and as the ranking member since 2023. A progressive communist democrat, she has had ample time to lead in strengthening banking practices and ensuring well-capitalized resilient banks. In this task, she is an abject failure as she advocates for setting aside sound banking practice in favor of DEI (Diversity, Equity, and Inclusion), which demands similar outcomes regardless of the circumstances, and loans conditioned on ESG (Environmental, Social, and corporate Governance) scoring that advances the progressive agenda and empowers third-parties with no equity state in the enterprise.

"I am alarmed by the failure of Silicon Valley Bank, which marks the second largest bank failure in U.S. history," she said in a statement. "I am closely monitoring and convening Committee members with regulators so myself and members can understand the latest around the closure of Silicon Valley Bank (SVB) by the California Department of Financial Protection and Innovation (DFPI), and the Federal Deposit Insurance Corporation (FDIC) appointed as receiver. I appreciate the DFPI and the FDIC for taking decisive action today, and I remain confident in America’s financial markets and the ability of our regulators to protect consumers and investors."

Yada, Yada, Yada. 

No matter how much Waters yammers on about risk and stress tests, it's all bullshit. This was not a regulatory failure, it was the gross incompetence of risk management. Stress tests apply to leveraged balance sheets, not to Triple-A investments that are not leveraged. All the regulations proposed cannot fix a problem that demands an astute risk manager with the singular task of protecting the bank, its depositors, and shareholders -- not "woke stakeholders," the corrupt regime in power, or a progressive communist democrat agenda.

The revelations are getting ugly…

Becker…

Silicon Valley Bank CEO Greg Becker, who was a director of the Federal Reserve Bank of San Francisco from 2019 until the day of his bank’s collapse, was quickly and quietly removed as a Class A director of the San Francisco Fed, representing member banks. In the best Stalinist tradition, he was “disappeared” from the Fed’s website, which now advertises that there is a “vacant seat Group 1.”

Becker sold $3.6 million worth of SVB shares on February 27, eleven days before regulators shut down his failed bank. It is almost certain that Becker knew of the need to raise $2.25 billion by issuing new common and convertible preferred shares to shore up its operations, the $1.8 billion loss on the sale of the bank’s AFS (Available For Sale) securities after it sold bonds in its portfolio of investments at a $1.8 billion loss, and the inherent dangers of its HTM (Hold To Maturity) portfolio in a fluctuating interest rate environment. There are only three answers: inattention, incompetence, and corruption.

As the CEO, he definitely knew that the position of Chief Risk Officer remained empty for eight months and that the staff was concentrating on progressive woke nonsense. Surely someone knew how to hedge the bank's interest rate exposure using interest rate swaps since they had done so previously. 

SVB had NO head of 'risk assessment' for nine months before it collapsed... as woke boss for Europe, the Middle East, and Africa was busy organizing a month-long Pride campaign and a 'Lesbian Visibility Day'

Collapsed lender Silicon Valley Bank operated without a chief risk officer between April 2022 and January 2023 while the operation's United Kingdom-based  Head of Risk stands accused of prioritizing pro-diversity initiatives over her actual role.

Meanwhile, Jay Ersapah, who acts as Head of Risk for the bank in Europe, Africa, and the Middle East and who describes herself as a 'queer person of color from a working-class background' - organized a host of LGBTQ initiatives including a month-long Pride campaign and implemented 'safe space' catch-ups for staff. 

In a corporate video published just nine months ago, she said she 'could not be prouder' to work for SVB serving 'underrepresented entrepreneurs.'

Professional network Outstanding listed Ersapah as a top 100 LGTBQ Future Leader.

'Jay is a leading figure for the bank’s awareness activities including being a panelist at the SVB’s Global Pride townhall to share her experiences as a lesbian of color, moderating SVB’s EMEA Pride townhall and was instrumental in initiating the organization's first-ever global "safe space catch-up", supporting employees in sharing their experiences of coming out,' her bio on the Outstanding website states. <Source>

The Fed…

Ps-1

Vivek, a 2024 presidential candidate hoping to head the Treasury Department in the next Administration... 

Vivek

Bottom line...

More government and more regulations are not the answer. We must hold incompetent and corrupt individuals responsible for their actions.

To the extent the progressive communist democrats are trying to blame deregulation, let us remember that they were the results of attempting to address the regulatory excesses and serious flaws in the Democrat-designed Dodd-Frank bill – the massive new regulatory plan named for two of the most corrupt financial regulators in Congress that saw institutions such as Fannie Mae and Freddie Mac as instruments of government policy, parking spots for out of work favored Democrats, and massive piggy banks to provide housing benefits to Democrat districts come election time. The heavy-handed regulators were burying small and community banks in unproductive red tape that eventually led to their acquisition by bigger banks with teams of compliance officers.

What happened to the idea of creative destruction where the investors and bondholders in a failing institution lose their investments and do not get a pass with government-subsidized funding and spreading the risk to the greater financial community? Yes, I feel sorry for the collateral damage in the community, but those companies should have been more aware of the risk in using a single bank.

WARNING: The progressive communist democrats will attempt to capitalize (pun intended) on this crisis. Demand that they lower government spending now!

We are so screwed.

-- Steve


“Nullius in verba”-- take nobody's word for it!
"Acta non verba" -- actions not words

“Beware of false knowledge; it is more dangerous than ignorance.”-- George Bernard Shaw

“Progressive, liberal, Socialist, Marxist, Democratic Socialist -- they are all COMMUNISTS.”

“The key to fighting the craziness of the progressives is to hold them responsible for their actions, not their intentions.” – OCS

"The object in life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane." -- Marcus Aurelius

“A people that elect corrupt politicians, imposters, thieves, and traitors are not victims... but accomplices” -- George Orwell

“Fere libenter homines id quod volunt credunt." (The people gladly believe what they wish to.) ~Julius Caesar

“Describing the problem is quite different from knowing the solution. Except in politics." ~ OCS