In an age of meretricious celebrities and woke CEOs, Silicon Valley’s belief in the adage "move fast and break things" was predictive..With CEO Greg Becker of Silicon Valley Bank working remotely from Hawaii while running the 16th largest bank in the US, what could go wrong? The gross failure of the Silicon Valley Bank is a tale of two converging themes: incompetent management at SVB and a sleepy Federal Reserve that got behind the interest rate curve and remains stuck in la la land..One suspects Becker — under the influence of celebrity CEOs like Jamie Diamond of JP Morgan who brandishes stakeholder capitalism, and BlackRock's Larry Fink who holds companies under the microscope on their ESG Status — found paradise in Hawaii and was too distracted by pushing woke policies instead of being laser-focused on managing the bottom line. Last summer SVB unveiled an $11.2 billion program to lend to small businesses and lower-income homeowners, targeting under-served communities from women and blacks to Latino entrepreneurs. In 2022, SVB committed $5 billion in sustainable finance to back carbon-neutral operations to support a green world. As magnanimous and well-intentioned as these programs might be, saving the world is not a bank’s core business. Becker put his political priorities ahead of the interests of his customers, investors and above all risk management..SVB management took their eye off the ball and mismanaged their $120 billion portfolio. Only 11% of its deposits were insured, and its client base was concentrated in high-tech start-ups whose need for capital is insatiable and who are sensitive to rising interest rates. The most mind-boggling decision was that it did not hedge its interest rate risk. Its securities portfolio contained an average investment duration of 5.6 years, which means that a 2% increase in the five-year rate would trigger a $14 billion loss approximating SVB’s entire capital base. SVB held $91 billion in long-term bonds and only $26 billion in securities that could be sold right away. Why commit $65 billion long-term when one is dealing in risky high-tech unproven business models that don't turn a profit? And constantly need cash to keep the lights on..Becker failed at basic math as he went long in mortgage-backed securities at a time when low-interest rates had peaked and if rates increased he would be up the creek. Of course, he was blessed with great intuition unloading $3.6 million in stock days before the bank imploded and selling $30 million in two years..Vivek Ramaswamy, the author of Woke Inc, has written extensively about the impact of woke ideology in corporate America.."In adopting the multi-stakeholder model, the corporate managerial class pulled off the perfect con: CEOs can do whatever they want so long as they say they have everyone’s best interest in mind. Wokenomics is a powerful weapon for CEOs, which they can readily deploy as a smoke screen to distract from greed, fraud and malfeasance. It provides the perfect alibi: accountability to everyone is accountability to no one at all.".The Federal Reserve prefaces its commentary with we are “data dependent,” but misread the tea leaves in its fight against inflation. During the chaotic Trump presidency, the economy was firing on all cylinders with unemployment at historic lows and economic growth peaking. That was the time for the Fed to increase rates and control the money supply. By the time COVID hit and Biden’s progressive crew took over the White House, more trillions were unleashed and it was too late as inflation staggered out of the gate, and with the economy reopening ran rampant and became embedded. The Fed kept falling further and further behind the curve..To make matters worse, the Fed administered stress tests on the too-big-to-fail big banks, but didn't test them on a rising rate environment, relying on standard predictable models from the 2008 financial crisis. Regional banks are not tested at all and do not have a regulated reserves ratio in place. What's the point of conducting stress tests if the participants already have the answers to the exam?.Adding insult to injury the San Francisco Federal Reserve was in charge of overseeing SVB and examined its bank's books, but failed to see the flashing red light right: huge interest rate risk, a disproportionate amount of uninsured deposits, 97% of deposits were from customers with more than the FDIC limit of $250,000, explosive asset growth as assets quadrupled in four years, and SVB borrowing $20 billion from the Federal Home Loan Bank — the latter being the lender of next to last resort. And in the ultimate incredulous irony, SVB’s CEO, Becker, sat on the SF board of directors until the final day before he jetted off to his multi-million dollar apartment in Hawaii to relax while his bank burned..To restore trust in the financial system, bank CEOs need to dump their woke mantra and get back to the business of banking, making sure that leverage does not get out of hand as a bank's loan book is its bible, and when a large number of loans go bad a bank's equity can be wiped out in the blink of an eye. Bankers need to become boring again, stick to their skill set and pursue their social pet projects after work hours. As for the Fed, it needs to get out of the media spotlight with Jerome Powell providing ongoing market commentary distorting asset prices as the stock market moves up or down according to every breath he takes and the Fed becoming the key variable in determining asset values. Markets are distorted as a result..Lastly, allow the free market to function and stop bailing out venture capitalist billionaires. Peter Thiel, who is worth billions, instructed businesses to move their deposits out of SVB and started the panic, not giving a damn about the consequences of screaming fire in a theatre. Tom Siebel, CEO of software firm C3.ai, offered a scathing rebuke of the over-entitled Silicon Valley billionaires: “These guys didn’t fulfill their fiduciary responsibility to anybody, they almost took the whole system down.”.It’s well past the time to have CEO Becker’s stock heist clawed back, the Fed’s role reduced to speaking once per quarter, fighting inflation instead of running the macro economy and super-wealthy venture capitalists made to compete in the arena of ideas and innovation and not demanding government intervention and bailouts at the first sign that their lavish lifestyles are in jeopardy.
In an age of meretricious celebrities and woke CEOs, Silicon Valley’s belief in the adage "move fast and break things" was predictive..With CEO Greg Becker of Silicon Valley Bank working remotely from Hawaii while running the 16th largest bank in the US, what could go wrong? The gross failure of the Silicon Valley Bank is a tale of two converging themes: incompetent management at SVB and a sleepy Federal Reserve that got behind the interest rate curve and remains stuck in la la land..One suspects Becker — under the influence of celebrity CEOs like Jamie Diamond of JP Morgan who brandishes stakeholder capitalism, and BlackRock's Larry Fink who holds companies under the microscope on their ESG Status — found paradise in Hawaii and was too distracted by pushing woke policies instead of being laser-focused on managing the bottom line. Last summer SVB unveiled an $11.2 billion program to lend to small businesses and lower-income homeowners, targeting under-served communities from women and blacks to Latino entrepreneurs. In 2022, SVB committed $5 billion in sustainable finance to back carbon-neutral operations to support a green world. As magnanimous and well-intentioned as these programs might be, saving the world is not a bank’s core business. Becker put his political priorities ahead of the interests of his customers, investors and above all risk management..SVB management took their eye off the ball and mismanaged their $120 billion portfolio. Only 11% of its deposits were insured, and its client base was concentrated in high-tech start-ups whose need for capital is insatiable and who are sensitive to rising interest rates. The most mind-boggling decision was that it did not hedge its interest rate risk. Its securities portfolio contained an average investment duration of 5.6 years, which means that a 2% increase in the five-year rate would trigger a $14 billion loss approximating SVB’s entire capital base. SVB held $91 billion in long-term bonds and only $26 billion in securities that could be sold right away. Why commit $65 billion long-term when one is dealing in risky high-tech unproven business models that don't turn a profit? And constantly need cash to keep the lights on..Becker failed at basic math as he went long in mortgage-backed securities at a time when low-interest rates had peaked and if rates increased he would be up the creek. Of course, he was blessed with great intuition unloading $3.6 million in stock days before the bank imploded and selling $30 million in two years..Vivek Ramaswamy, the author of Woke Inc, has written extensively about the impact of woke ideology in corporate America.."In adopting the multi-stakeholder model, the corporate managerial class pulled off the perfect con: CEOs can do whatever they want so long as they say they have everyone’s best interest in mind. Wokenomics is a powerful weapon for CEOs, which they can readily deploy as a smoke screen to distract from greed, fraud and malfeasance. It provides the perfect alibi: accountability to everyone is accountability to no one at all.".The Federal Reserve prefaces its commentary with we are “data dependent,” but misread the tea leaves in its fight against inflation. During the chaotic Trump presidency, the economy was firing on all cylinders with unemployment at historic lows and economic growth peaking. That was the time for the Fed to increase rates and control the money supply. By the time COVID hit and Biden’s progressive crew took over the White House, more trillions were unleashed and it was too late as inflation staggered out of the gate, and with the economy reopening ran rampant and became embedded. The Fed kept falling further and further behind the curve..To make matters worse, the Fed administered stress tests on the too-big-to-fail big banks, but didn't test them on a rising rate environment, relying on standard predictable models from the 2008 financial crisis. Regional banks are not tested at all and do not have a regulated reserves ratio in place. What's the point of conducting stress tests if the participants already have the answers to the exam?.Adding insult to injury the San Francisco Federal Reserve was in charge of overseeing SVB and examined its bank's books, but failed to see the flashing red light right: huge interest rate risk, a disproportionate amount of uninsured deposits, 97% of deposits were from customers with more than the FDIC limit of $250,000, explosive asset growth as assets quadrupled in four years, and SVB borrowing $20 billion from the Federal Home Loan Bank — the latter being the lender of next to last resort. And in the ultimate incredulous irony, SVB’s CEO, Becker, sat on the SF board of directors until the final day before he jetted off to his multi-million dollar apartment in Hawaii to relax while his bank burned..To restore trust in the financial system, bank CEOs need to dump their woke mantra and get back to the business of banking, making sure that leverage does not get out of hand as a bank's loan book is its bible, and when a large number of loans go bad a bank's equity can be wiped out in the blink of an eye. Bankers need to become boring again, stick to their skill set and pursue their social pet projects after work hours. As for the Fed, it needs to get out of the media spotlight with Jerome Powell providing ongoing market commentary distorting asset prices as the stock market moves up or down according to every breath he takes and the Fed becoming the key variable in determining asset values. Markets are distorted as a result..Lastly, allow the free market to function and stop bailing out venture capitalist billionaires. Peter Thiel, who is worth billions, instructed businesses to move their deposits out of SVB and started the panic, not giving a damn about the consequences of screaming fire in a theatre. Tom Siebel, CEO of software firm C3.ai, offered a scathing rebuke of the over-entitled Silicon Valley billionaires: “These guys didn’t fulfill their fiduciary responsibility to anybody, they almost took the whole system down.”.It’s well past the time to have CEO Becker’s stock heist clawed back, the Fed’s role reduced to speaking once per quarter, fighting inflation instead of running the macro economy and super-wealthy venture capitalists made to compete in the arena of ideas and innovation and not demanding government intervention and bailouts at the first sign that their lavish lifestyles are in jeopardy.
