SVB plays a central role in the start-up economy of San Francisco
Causes of SVB Bank failure summarized:
– Money was so freely available to all these start-ups, they didn’t borrow a lot
– SVB had a ton of deposits coming in and not a lot of opportunity to make loans out to people
– They really had way too much money. So, they invested it in long-dated Treasury bonds
– When the yield curve inverted, these bonds incurred a negative return
– All these startups are now withdrawing it because they don’t have access to free money anymore, they’re withdrawing it just to pay their bills. So, you’re having the deposits go down at SVB leading to their liquidity crisis
The “cheap money ecosystem” that fed the tech start-up culture has come to an end with the Federal Reserve raising interest rates to curb inflation, and the failure of Silicon Valley Bank might be the first domino to fall among California-based financial institutions, Breitbart Economics Editor John Carney said in an interview Friday with Fox Business host Larry Kudlow.
“The sudden implosion of Silicon Valley Bank (SVB) is sending shock waves through the financial system and the technology sector,” Carney wrote in Friday’s Breitbart Business Digest. “SVB plays a central role in the start-up economy of San Francisco. According to Bloomberg, it does business with about half of venture capital backed start-up firms in the U.S.”
“One of the problems [for SVB] was when money was so freely available to all these start-ups, they didn’t borrow a lot,” Carney told Kudlow. “So, they had a ton of deposits coming in and not a lot of opportunity to make loans out to people. I mean, yeah, you can lend money so people can buy a yacht or a fancy mortgage on some tech start-up billionaire’s fancy mansion, but they really had way too much money. So, they invested it in bonds. Bank of America I think has 25 percent of its assets in bonds, but this bank had over 50 percent of its assets in bonds.”
Kudlow noted that when the yield curve inverted, these bonds incurred a negative return.
“They’re losing money,” Carney agreed. “And at the same time, all these start-ups who are depositing so much money there are now withdrawing it because they don’t have access to free money anymore. So, they’re withdrawing it just to pay their bills. So, you’re having the deposits go down. They have to sell into a market where they are actually producing real losses, not just mark to market losses.”
“That is what sparked the panic basically,” he continued. “Earlier this week, [SVB] announced something like a $2 billion loss on their assets. And people said, ‘I better get my money out quickly.’”
“Now the FDIC stepped in to avoid an old-fashioned run on the bank,” Kudlow said.
The bank went into receivership on Friday when the California Department of Financial Protection and Innovation shuttered it, and the Federal Deposit Insurance Corporation (FDIC) issued a statement guaranteeing the accounts of all insured depositors. However, as Carney told Kudlow, this will not be reassuring to the depositors of the reportedly 93 percent of SVB deposits that are uninsured.
“There are people who are at risk of losing their deposits at least on paper,” Carney said.
All of this has been exacerbated by the Federal Reserves’ rate-hiking fight against inflation, which has signaled the end of the cheap lending low interest rate monetary policy that fostered Silicon Valley start-ups, Carney explained.
“I think we’re going to see a lot of the California-based financial institutions get into trouble because they were so dependent on this very cheap money ecosystem that was feeding start-up culture and is no longer there,” he said.
“What happens to the start-up culture now that there’s no cheap money or there’s no cheap, cheap money?” Kudlow asked. “[Are] they’re going to have trouble getting loans?”
“Absolutely,” Carney said. “They’ll have trouble getting loans and have trouble raising money because if you can get five percent on a treasury bond, why are you trying to get 10 percent on a very risky start-up? You’re not going to do that. You might as well just double down on leverage and get a treasury. So, I think that they’re going to have a lot of trouble being able to continue to raise money. And we’re going to see a lot of the start-ups start to tilt over.”
Kudlow asked Carney about the risk that this bank failure will spread beyond SVB.
“I think there’s a high risk that it spreads,” he said. “People are right now looking at every other bank, not the big banks—the JP Morgans, Citigroups, Wells Fargos, they’ll be fine.”
“The banking system is extremely well capitalized,” he added. “And so, I don’t think we’re on the verge of a financial crisis. But I do think we’ll probably have a couple more bank failures ahead of us.”
“You got it all wrong, Joe.”
Massive horde of migrants storm El Paso border checkpoint in brazen attempt to enter the US as wild footage shows them tearing down concrete barriers and wire
‘Absolute madness’
- On Sunday, a large group of migrants, numbering around 1,000, were caught on camera trying to rush the U.S. southern border from Mexico
- Video footage of the migrants could be seen attempting to overwhelm official checkpoints as they made their way through the port of entry in El Paso, Texas
- The group consisted mostly of young men, but there were also women and young children present
A massive group of around 1,000 migrants were caught on camera attempting to rush the U.S. southern border from Mexico on Sunday afternoon.
Video captured by a Fox News reporter saw hordes of migrants rushing a border checkpoint from Juarez, Mexico into El Paso, Texas.
Footage sees the group, which consists of mostly of young men but also includes women and young children, running along a border road as they attempted to overwhelm those at official check points as they made their way through the port of entry in El Paso in an effort to get into the United States.
CBP officers say they ‘implemented port hardening measures’ including the use of barbed wire fencing and concrete barricades, by temporarily preventing northbound traffic at the Paso Del Norte Bridge.
CBP officials say the large group approached the international line ‘posing a threat to make mass entry.’
Sunday’s sudden surge comes after sharp drop in illegal border crossings since December.
The decrease in border crossings followed Biden’s announcement in early January that Mexico would take back Cubans, Haitians, Nicaraguans and Venezuelans under a pandemic-era rule that denies migrants the right to seek asylum as part of an effort to prevent the spread of COVID-19.
At the same time, the U.S. agreed to admit up to 30,000 a month of those four nationalities on humanitarian parole if they apply online, enter at an airport and find a financial sponsor.
The administration has also proposed generally denying asylum to anyone who travels though another country on their way to the U.S. without seeking protection there – effectively all non-Mexicans who appear at the U.S. southern border.
Agents detained migrants more than 2.5 million times at the southern border in 2022, including more than 250,000 in December, the highest on record.
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