What Is This Opinion Worth? - SVB

You may have heard about a small problem in California, some ta-do about a bank. Evidently, the bank sponsored a race and has the entire world all excited because everyone is now afraid that other banks will also get involved in holding these kinds of “runs”. Perhaps because the bank was named Silicon Valley Bank (SVB) and a lot of “tech” companies were customers of the bank, it got way to much hype than it should have because of the internet and social-media.

Of course, the ‘run’ on SVB was not as funny as I am hoping my opening paragraph was intended to be. But was the run on SVB as important as the reactions to it were and are? In general and in reality the answer is simple; and yet, the ripples from it are much more important than they ought to have been and unlike what normal ‘laws of physics’ would project those ripples increased as they spread out rather than diminished.

As this doesn’t make sense, it would seem to be a perfect topic for an intelligence test. I should point out before the test that it doesn’t look like intelligence was in evidence across virtually every dimension or population one could look at.

Question 1: Did Silicon Valley Bank (SVB) have or not have the assets of its depositors? A. Yes B. No

Question 2: Did the executives of SVB act with the depositors interests in mind or their own? A. Depositors interests B. Self-interests

Question 3: Where there options that SVB or bank regulators could have taken that no one thought of? A. Yes B. No

Question 4: Could the US Government have made money by acting to prevent SVB’s run or failure? A. Yes B. No

Question 5: Which of the following entities have provided effective narratives that have contained the public “fears” regarding banking? A. Federal Reserve B. Congress C. Financial industry and its experts D. President & Administration E. News media F. Social media G. None of the above

Answer to Question 1: Yes. SVB had the assets that its depositors had deposited. The assets until SVB started selling some of them at a loss. They sold them because of the need for cash. The assets were not in cash, but in investments.

Answer to Question 2: There is an element of B. Self-interest at play here. Executives did take bonuses during the collapse. It’s hard to say that they didn’t act with some intentions early on of serving their depositors, but at best they did so extremely incompetently. Had they chosen different ways to provide for customer withdraws, it is possible there would not have been a run on the bank.

Answer to Question 3: Yes. There are almost always options that those who are facing a problem over which those in-charge don’t or can’t think of. The level of ‘banking’ operations experience might be one of the causal factors in the collapse, but doesn’t mean it was unavoidable just not within the talents and competencies of the decision-makers.

Answer to Question 4: Yes. But this is usually frowned upon because politicians can’t agree on who would do this, and more importantly there is a huge risk of corruption by those same politicians. If however, a competent and professional entity that had leaders with integrity and intelligence it would be beneficial to the economy, public and nation.

Answer to Question 5: G – none of the above is unfortunately the correct answer. Each entity has either missed the opportunity to “save the day” by providing a good explanation of why there is nothing to fear in the US’s banking system; or they have actually engaged in explicit or implicit acts that have contributed to the problem and risk. The allocation of who has failed the most to the least would require an extensive assessment and most people would disagree with the ranking. But you ought to be able to think for yourself why any given entity didn’t do a good job of providing an effective and beneficial narrative. [Note: If you choose on the basis of a political party, you unfortunately have managed to fail the test even if by some miracle you got all the other answers correct.]