I wasn’t able to keep up with all the happenings as much I wanted this week, especially the collapse of Silicon Valley Bank, but I do still have some thoughts on that, along with links where you can read more. Before we get to it though, a quick update.
I spent the last three days of the week at the Broadbent Institute’s Progress Summit in Ottawa. Amazon Labor Union President Chris Smalls was there for a chat with the leader of Canada’s New Democratic Party Jagmeet Singh, and I was on a couple panels talking about tech policy in Canada (it was much more fun than it sounds!) and progressive podcasting.
Specifically, I spoke with former Wikimedia Foundation executive director Sue Gardner and The Resolve founder Matthew DiMera about the problems with ongoing efforts to regulate the tech industry and its effects on broadcast and news media in Canada, and how much of the discussion about tech policy in Canada suffers from importing US narratives about tech rather than considering how Canada’s distinct economy and position may require a different approach (something I’ve been talking about for a long time). We had great feedback on the panel, and afterward Broadbent’s Executive Director Jen Hassum told me folks from TikTok, Meta, Google, and maybe others were in the audience.
Needless to say, I didn’t get their business cards, but I did manage to snag a Meta cookie!
Overall though it was a really nice event, and it was great to see friends and meet some folks I’ve long known through Twitter. Now, as this hits your inbox, I’m on a flight to New Zealand. If you’re around, make sure to come out to one of my events!
Enjoy this week’s issue!
— Paris Marx
No tears for Silicon Valley Bank
The big story this week is the closure of Silicon Valley Bank by US regulators on Friday, and what it might mean for the tech sector to have a bank that was key to servicing venture capitalists and start-ups suddenly shut down with much of its holdings in jeopardy. SVB was the 16th largest bank in the United States and is now the second largest bank collapse in US history. One of the key details for me is that since it served a very niche and high-income clientele, over 93% of its deposits are not insured by the Federal Deposit Insurance Corporation, which covers the first $250,000 for a bank customer.
Describing the series of events, Brooke Masters broke it down pretty plainly in the Financial Times:
When its tech-focused depositors were hit by a cash squeeze driven by the recent downturn in the sector, they pulled money from their accounts and moved it in search of higher yields. To help cover the withdrawals, SVB sold bonds in its portfolio. It also sold bonds to buy assets with higher yields.
But the bonds it was selling had dropped in value because of rising rates, crystallising huge losses. That worried SVB’s customers, many of whom had accounts that exceeded the Federal Deposit Insurance Corporation’s $250,000 cap on deposit insurance — so they pulled even more money. The regulator announced it was closing down SVB on Friday in the largest bank failure since the global financial crisis of 2008.
Venture capitalists like David Sacks are already calling for all deposits at the bank to be guaranteed, along with economists like Larry Summers. But there’s also a lot of resistance to that idea. Yes, companies may struggle to make payroll as a result of the collapse, but why is it for the public to bail out a sector that fights so hard to reduce the amount it has to pay back for all the benefits it receives from the state? That’s not to say that workers should be shafted by any means, but “founders” and venture capitalists are not people I’m very concerned about.
I don’t see a point in outlining everything about this collapse; other people can do that far better than I, especially since I’ve been at a conference the past few days. Vox has a good and approachable breakdown of what’s happening with SVB, while Maxwell Strachen gets into some of the wider issues for Vice, and Marc Rubinstein wrote a more technical explanation of the collapse in Net Interest. I do want to point to a few interesting details I’ve pulled out of this though:
- Peter Thiel’s Founders Fund pulled its deposits out of Silicon Valley Bank, and advised companies it’s involved with to do the same. I’ve seen suggestions that Thiel played a major role in the bank run that ultimately took down SVB. It will be interesting to watch how this part of the story evolves.
- In 2015, SVB’s president lobbied Congress to loosen post-2008 banking regulations that applied to his bank. After a few years, he got his wish — and it’s part of the reason this collapse was able to happen.
- SVB’s Chinese joint venture says its balance sheet is “sound” and that its holdings were separate from the US company.
- Molly White has been chronicling the effects of this on the crypto industry over on Web3 Is Going Just Great. It’s been a particular risk to the USDC stablecoin, which had about a quarter of its reserves in SVB. USDC has since lost its dollar peg and Coinbase has paused redemptions. (Earlier this week Silvergate Bank shut down, which was an important bank for crypto companies.)
On a larger note though, there are a lot of ominous statements coming out of people who’ve gotten wildly wealthy during the tech boom that was fueled by low interest rates these past 15 years, often while releasing products that didn’t deliver the public benefits they claimed while creating a lot of problems we collectively are still dealing with. When I hear this collapse could “wipe out a whole generation of startups” and will be “quite severe for our innovation system,” I have a very hard time feeling anything but joy. We do need to crush the Silicon Valley system and build something new if we ever want technology and innovation to serve the public good over the bottom lines of Silicon Valley investors.
Sadly, I don’t think that’s going to come from this collapse though.