Jacob Silverman is a journalist in New York. He is the author of two books and the host of the new CBC podcast on the the fall of the FTX cryptocurrency exchange, The Naked Emperor, premiering Monday.
The sudden collapse of Silicon Valley Bank – the 16th-largest lender in the United States – has spawned a legitimate crisis in the tech industry. It’s a financial disaster for the many venture capital funds, startups, high-net-worth individuals and private-equity firms that kept their money in Silicon Valley Bank (SVB), which was considered the place to sock away one’s money after raising a multimillion-dollar funding round.
But it’s also a political and cultural crisis for Silicon Valley elites, many of them steeped in libertarian politics, who now find themselves asking for a bailout, demanding the kind of government intervention that’s supposed to be anathema. And they want the bailout now, promising in feverish announcements that if SVB isn’t made whole immediately, a banking crisis will spread across the United States, causing mass bank runs and economic devastation.
Explainer: What happened to Silicon Valley Bank, and what its collapse means for banks and investors
The level of panic among tech leaders is perhaps unlike anything in the industry before. On Twitter, executives, venture capitalists and financiers such as David Sacks, Mark Cuban and Bill Ackman expressed demanded immediate action from the Biden administration. Jason Calacanis, a VC who’s a member of Elon Musk’s Twitter “war room,” tweeted late into Saturday night a series of all-caps messages promising economic Ragnarok if SVB wasn’t rescued in full. Palantir co-founder Joe Lonsdale even paid to promote one of his tweets, saying “the innovation world” deserved “a depositor bailout.” Chief executives have prophesied that an SVB collapse would wipe out a generation of startups.
But outside the tech industry, responses have varied from skepticism to schadenfreude, with an occasional note of bafflement. It’s rare that venture capitalists, who command billions in investment capital, are left begging for cash. As a class, many VCs have moved to the right in recent years – casting their once-beloved San Francisco as a crime-ridden liberal dystopia, donating to Republican politicians, including Ron DeSantis, and moving to Austin, Tex., and Miami, purple islands in red states with no income tax. They have come to largely despise the federal government – which is perhaps why some tech elites have decided to heap blame on Biden administration officials while also demanding their help.
“Yellen & Powell said inflation was transitory so they could keep spending & pumping,” Mr. Sacks tweeted on Saturday, referring to U.S. Treasury Secretary Janet Yellen and Federal Reserve chair Jerome Powell. “When it blew up in their faces, the Fed jacked up rates so hard it collapsed a huge bank.”
By most accounts, SVB blew up because of some pretty basic strategic errors. During a decade-plus of low interest rates and cheap cash, startups accumulated huge amounts of investment capital and deposited it with the bank. In 2018, seeking to eke out slightly more profit, the bank locked all that cash into some long-term, low-interest bonds – which they were then forced to sell at a significant loss when the bank run began this month. Also in 2018, the Trump administration reversed some Dodd-Frank financial regulations – a measure that was supported by SVB chief executive Greg Becker. Add the crypto collapse, a general decline in tech stocks and panic from major depositors (such as Peter Thiel’s Founders Fund), and you get a bank run and the fall of Silicon Valley’s favorite bank.
Tech leaders have warned that some companies may not be able to make payroll in the coming week and that layoffs are inevitable. Millionaire and billionaire chief executives have promised on Twitter that a full bailout would really be about protecting workers and intrepid entrepreneurs. But that populist gloss rings hollow for an industry that recently celebrated mass layoffs and whose executives rarely express pro-labour sympathies.
Many Americans are tired of self-regarding chief executives who spend their time on Twitter insisting they are smarter than the rest of us while producing little. More than 60 per cent of Americans live paycheque to paycheque, and new startups tend not to help solve people’s material needs. Some of the more successful startups to emerge in the past decade were rent-seeking intermediaries, like Wrapbook or Etsy, who, as SVB customers, now may be unable to take their cut from others’ work. Since acquiring Twitter, Mr. Musk alone has probably done more to dirty the image of the tech industry than a hundred Mark Zuckerbergs could.
The public just isn’t as infatuated with the tech industry as it once was, and it doesn’t share its political or economic priorities. Still, with their powerful political connections, Silicon Valley’s VCs may yet get their bailout. But they are losing the war of public opinion.