Silicon Valley Bank or why bank regulators should ban WhatsApp

Apologies about the delay. We’re back

Silicon Valley Bank collapsed last week. The bank lost money on a bunch of investments that looked safe (they always do) but turned out to be very risky. When it announced the loss, some of the people who had money with the bank got worried. What if the bank didn’t have enough money to pay back its depositors, they asked? Unfortunately, they asked these questions in group chats with other depositors. And it turns out that the start-up founders and venture capitalists who made up most of Silicon Valley Bank’s customers like group chats. Worried people saw other people worry on Whatsapp, pulled out their money and the bank failed. A classic bank run but where everyone listens to Tim Ferriss and has a friend who works at Google. For the record, I like Tim Ferriss.

Much ink has been spilt on why SVB blew up, whether the government should have rescued depositors (it did) and if the collapse will trigger more bank runs. Here are some venture capitalists predicting Armageddon without government intervention, some traders downplaying the risk of a wider banking collapse and finally Matt Levine wrapping up the debate around moral hazards and bailouts beautifully. Highly recommended.

I’ll add one thing: Crises rumble on for years.  Lehman Brothers blew up in September 2008, a year after the run on Northern Rock bank. The US Federal Reserve started raising interest rates roughly a year ago. Since then there have been cryptocurrency bankruptcies, a meltdown in the UK pension fund sector (remember LDIs) and the collapse of two Silicon Valley banks. All unique, all unlikely without higher rates. Expect more to go wrong as rates barrel through through the economy’s creaking pipes.

Formative experiences

From a piece on Metternich in the latest edition of the LRB:

Deeply impressed by the ambient instability of his youth, Metternich came to see the quest for an all-embracing system of tranquillity as providing the central meaning of his life. When his friend and former employee Alexander von Hübner came to visit the 86-year-old former statesman late in May 1859, only a week before his death, Metternich summed up his own career in politics: ‘I was a rock of order’ – ‘un rocher d’ordre’.

Born in 1773, Metternich grew up during the Revolutionary and Napoleonic wars that swept Europe between 1792 and 1815. One of the most famous statesmen and diplomats of his era, he was deeply influenced by this turbulence:

I hate the war and all that it brings: the killing, the pain, the piggishness, the pillaging, the corpses, the amputations, the dead horses – not to forget the rape,’ the Austrian foreign minister Klemens von Metternich told his friend Wilhelmine von Sagan. War’s only positive feature, he observed, was its ability to numb the senses to the immense misery it caused

War, he told Sagan, ‘contaminates everything, even the imagination … That is why I work for peace.’

The violent politics of the Revolutionary and Napoleonic periods sparked a generation of reactionary conservativism and a stable balance of power between the winning powers. The lived experience of that violence imprinted itself on those who lived through it and shaped their politics for their remaining decades.

Today, wholesale destruction wrought by war is a fate most of us have the privilege to avoid. Still, many young people today might find the idea of growing up amidst crisis a familiar one. My generation has lived in the shadow of 9/11, the GFC, and now Covid-19. How might the experience of today’s crises shape the politics of 2040 or 2050? Which of your assumptions are the product of your youth’s setting?

For myself, recurrent crisis has left the sense that the world is malleable and contingent. Stability, and the confidence that comes with it, are only ever temporary states. Certainty should have us looking over our shoulder or scanning the path ahead for potholes.